-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KqtTqxfRAJWv6yrKlcQioKjqN9AvgJoHUxhM1oUgG8fvyvl+xuPSTNM/tPjn80k+ 8tSC8kKbGVmk2rmUyL7ApA== 0000912057-01-539638.txt : 20020410 0000912057-01-539638.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-539638 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS ILLINOIS INC /DE/ CENTRAL INDEX KEY: 0000812074 STANDARD INDUSTRIAL CLASSIFICATION: GLASS CONTAINERS [3221] IRS NUMBER: 222781933 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09576 FILM NUMBER: 1788529 BUSINESS ADDRESS: STREET 1: ONE SEAGATE CITY: TOLEDO STATE: OH ZIP: 43666 BUSINESS PHONE: 4192475000 MAIL ADDRESS: STREET 1: ONE SEAGATE CITY: TOLEDO STATE: OH ZIP: 43666 FORMER COMPANY: FORMER CONFORMED NAME: OWENS ILLINOIS HOLDINGS CORP DATE OF NAME CHANGE: 19870512 10-Q 1 a2063263z10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 2001 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Owens-Illinois, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-9576 22-2781933 - ------------------ ------------------ ---------------------- (State or other (Commission (IRS Employer jurisdiction of File No.) Identification No.) incorporation or organization) One SeaGate, Toledo, Ohio 43666 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 419-247-5000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Owens-Illinois, Inc. $.01 par value common stock - 146,482,348 shares at October 31, 2001. Part I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The Condensed Consolidated Financial Statements presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Since the following unaudited condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements; accordingly, they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000. 2 OWENS-ILLINOIS, INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS Three months ended September 30, 2001 and 2000 (Millions of dollars, except share and per share amounts)
2001 2000 ------------- ------------- Revenues: Net sales $ 1,360.2 $ 1,430.3 Royalties and net technical assistance 6.1 6.0 Equity earnings 4.8 6.3 Interest 6.3 8.4 Other 6.4 41.3 ------------- ------------- 1,383.8 1,492.3 Costs and expenses: Manufacturing, shipping, and delivery 1,036.9 1,126.4 Research and development 11.1 13.1 Engineering 6.8 5.4 Selling and administrative 69.2 73.6 Interest 105.1 124.2 Other 31.1 843.7 ------------- ------------- 1,260.2 2,186.4 ------------- ------------- Earnings (loss) before items below 123.6 (694.1) Provision (credit) for income taxes 47.6 (247.4) Minority share owners' interests in earnings of subsidiaries 6.6 2.5 ------------- ------------- Net earnings (loss) $ 69.4 $ (449.2) ============= ============= Basic net earnings (loss) per share of common stock $ 0.44 $ (3.12) ============= ============= Weighted average shares outstanding (thousands) 146,147 145,716 ============= ============= Diluted net earnings (loss) per share of common stock $ 0.44 $ (3.12) ============= ============= Weighted diluted average shares (thousands) 146,228 145,716 ============= =============
See accompanying notes. 3 OWENS-ILLINOIS, INC. CONDENSED CONSOLIDATED RESULTS OF OPERATIONS Nine months ended September 30, 2001 and 2000 (Millions of dollars, except share and per share amounts)
2001 2000 ------------- ------------- Revenues: Net sales $ 4,056.1 $ 4,225.1 Royalties and net technical assistance 19.0 19.5 Equity earnings 13.7 14.6 Interest 21.2 23.4 Other 531.6 138.9 ------------- ------------- 4,641.6 4,421.5 Costs and expenses: Manufacturing, shipping, and delivery 3,147.9 3,279.9 Research and development 31.5 36.7 Engineering 21.5 24.9 Selling and administrative 249.1 214.5 Interest 335.5 360.8 Other 209.5 944.4 ------------- ------------- 3,995.0 4,861.2 ------------- ------------- Earnings (loss) before items below 646.6 (439.7) Provision (credit) for income taxes 267.9 (146.6) Minority share owners' interests in earnings of subsidiaries 12.8 8.9 ------------- ------------- Earnings (loss) before extraordinary item 365.9 (302.0) Extraordinary charge from early extinguishment of debt, net of applicable income taxes (4.1) ------------- ------------- Net earnings (loss) $ 361.8 $ (302.0) ============= ============= Basic net earnings (loss) per share of common stock: Earnings (loss) before extraordinary item $ 2.41 $ (2.18) Extraordinary charge (0.03) ------------- ------------- Net earnings (loss) $ 2.38 $ (2.18) ============= ============= Weighted average shares outstanding (thousands) 145,225 146,245 ============= ============= Diluted net earnings (loss) per share of common stock: Earnings (loss) before extraordinary item $ 2.38 $ (2.18) Extraordinary charge (0.03) ------------- ------------- Net earnings (loss) $ 2.35 $ (2.18) ============= ============= Weighted diluted average shares (thousands) 154,036 146,245 ============= =============
See accompanying notes. 4 OWENS-ILLINOIS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2001, December 31, 2000, and September 30, 2000 (Millions of dollars)
Sept. 30, Dec. 31, Sept. 30, 2001 2000 2000 ---------- ----------- ----------- Assets Current assets: Cash, including time deposits $ 174.3 $ 229.7 $ 163.6 Short-term investments, at cost which approximates market 16.6 19.7 31.7 Receivables, less allowances for losses and discounts ($54.1 at September 30, 2001, $69.9 at December 31, 2000, and $66.3 at September 30, 2000) 870.9 770.9 912.6 Inventories 792.9 862.4 862.6 Prepaid expenses 201.8 199.0 138.6 ---------- ----------- ----------- Total current assets 2,056.5 2,081.7 2,109.1 Investments and other assets: Equity investments 177.6 181.4 190.7 Repair parts inventories 204.8 232.0 244.4 Prepaid pension 851.8 770.9 751.7 Insurance receivable for asbestos-related costs 42.5 200.7 203.3 Deposits, receivables, and other assets 584.2 490.6 492.8 Excess of purchase cost over net assets acquired, net of accumulated amortization ($666.9 at September 30, 2001, $597.7 at December 31, 2000, and $574.5 at September 30, 2000) 2,919.3 3,101.0 3,129.9 ---------- ----------- ----------- Total other assets 4,780.2 4,976.6 5,012.8 Property, plant, and equipment, at cost 5,554.2 5,662.4 5,606.2 Less accumulated depreciation 2,464.5 2,377.5 2,319.5 ---------- ----------- ----------- Net property, plant, and equipment 3,089.7 3,284.9 3,286.7 ---------- ----------- ----------- Total assets $ 9,926.4 $ 10,343.2 $ 10,408.6 ========== =========== ===========
5 CONDENSED CONSOLIDATED BALANCE SHEETS - continued
Sept. 30, Dec. 31, Sept. 30, 2001 2000 2000 ---------- ----------- ----------- Liabilities and Share Owners' Equity Current liabilities: Short-term loans and long-term debt due within one year $ 108.6 $ 120.0 $ 139.6 Current portion of asbestos-related liabilities 220.0 180.0 180.0 Accounts payable and other liabilities 905.8 1,018.0 979.7 ---------- ----------- ----------- Total current liabilities 1,234.4 1,318.0 1,299.3 Long-term debt 5,203.9 5,729.8 5,732.3 Deferred taxes 443.5 218.2 186.6 Nonpension postretirement benefits 274.9 296.1 299.5 Other liabilities 352.1 360.5 417.7 Asbestos-related liabilities 137.9 364.7 426.6 Commitments and contingencies Minority share owners' interests 151.3 172.9 180.4 Share owners' equity: Convertible preferred stock, par value $.01 per share, liquidation preference $50 per share, 9,050,000 shares authorized, issued and outstanding 452.5 452.5 452.5 Exchangeable preferred stock 3.4 3.4 Common stock, par value $.01 per share 250,000,000 shares authorized, 159,415,245 shares issued and outstanding, less 12,932,897 treasury shares at September 30, 2001 (156,973,143 issued and outstanding, less 12,018,700 treasury shares at December 31, 2000; and 156,969,643 issued and outstanding, less 10,937,700 treasury shares at September 30, 2000) 1.6 1.6 1.6 Capital in excess of par value 2,216.9 2,205.1 2,204.7 Treasury stock, at cost (248.0) (242.8) (237.9) Retained earnings (deficit) 315.2 (30.4) (34.0) Accumulated other comprehensive income (609.8) (506.4) (524.1) ---------- ----------- ----------- Total share owners' equity 2,128.4 1,883.0 1,866.2 ---------- ----------- ----------- Total liabilities and share owners' equity $ 9,926.4 $ 10,343.2 $ 10,408.6 ========== =========== ===========
See accompanying notes. 6 OWENS-ILLINOIS, INC. CONDENSED CONSOLIDATED CASH FLOWS Nine months ended September 30, 2001 and 2000 (Millions of dollars)
2001 2000 ---------- -------- Cash flows from operating activities: Earnings (loss) before extraordinary items $ 365.9 $ (302.0) Non-cash charges (credits): Depreciation 299.1 312.1 Amortization of deferred costs 101.2 106.8 Future asbestos-related costs 550.0 Restructuring costs and write-offs of certain assets 122.0 248.3 Gains on asset sales (470.3) Deferred tax provision (credit) 210.3 (213.6) Other (86.2) (112.7) Change in non-current operating assets (12.9) (17.8) Asbestos-related payments (186.8) (119.6) Asbestos-related insurance proceeds 158.2 2.0 Reduction of non-current liabilities 4.8 (3.0) Change in components of working capital (233.5) (164.1) ---------- -------- Cash provided by operating activities 271.8 286.4 Cash flows from investing activities: Additions to property, plant, and equipment (344.1) (342.0) Acquisitions, net of cash acquired (31.6) (78.2) Net cash proceeds from divestitures 594.9 40.2 ---------- -------- Cash provided by (utilized in) investing activities 219.2 (380.0) Cash flows from financing activities: Additions to long-term debt 3,726.0 519.7 Repayments of long-term debt (4,158.5) (455.6) Payment of finance fees (62.1) Payment of convertible preferred stock dividends (16.1) (16.1) Treasury shares repurchased (5.2) (12.3) Decrease in short-term loans (2.6) (23.4) Issuance of common stock and other 1.1 1.3 ---------- -------- Cash provided by (utilized in) financing activities (517.4) 13.6 Effect of exchange rate fluctuations on cash (29.0) (13.5) ---------- -------- Decrease in cash (55.4) (93.5) Cash at beginning of period 229.7 257.1 ---------- -------- Cash at end of period $ 174.3 $ 163.6 ========== ========
See accompanying notes. 7 OWENS-ILLINOIS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Tabular data in millions of dollars, except share and per share amounts 1. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
- --------------------------------------------------------------------------------------------- Three months ended September 30, ---------------------------------------- 2001 2000 --------------- ---------------- Numerator: Net earnings (loss) $ 69.4 $ (449.2) Preferred stock dividends: Convertible (5.4) (5.4) Exchangeable (0.1) - --------------------------------------------------------------------------------------------- Numerator for basic earnings (loss) per share -- income (loss) available to common share owners $ 64.0 $ (454.7) ============================================================================================= Denominator: Denominator for basis earnings (loss) per share -- weighted average shares outstanding 141,146,848 145,715,930 Effect of dilutive securities: Stock options 81,198 - --------------------------------------------------------------------------------------------- Denominator for diluted earnings (loss) per share -- weighted average shares outstanding 141,228,046 145,715,930 ============================================================================================= Basic earnings (loss) per share $ 0.44 $ (3.12) ============================================================================================= Diluted earnings (loss) per share $ 0.44 $ (3.12) =============================================================================================
The Convertible preferred stock was not included in the computation of three months ended September 30, 2001 diluted earnings per share since the result would have been antidilutive. Options to purchase 7,783,729 weighted average shares of common stock which were outstanding during the three months ended September 30, 2001 were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. For the three months ended September 30, 2000, diluted earnings per share of common stock are equal to basic earnings per share of common stock due to the net loss. 8
- --------------------------------------------------------------------------------------------------------------------- Nine months ended September 30, ------------------------------------- 2001 2000 --------------- ---------------- Numerator: Earnings (loss) before extraordinary items $ 365.9 $ (302.0) Preferred stock dividends: Convertible (16.1) (16.1) Exchangeable (0.2) - --------------------------------------------------------------------------------------------------------------------- Numerator for basic earnings (loss) per share - income (loss) available to common share owners 349.8 (318.3) Effect of dilutive securities - convertible preferred stock dividends 16.1 - --------------------------------------------------------------------------------------------------------------------- Numerator for diluted earnings (loss) per share - income (loss) available to common share owners after assumed exchanges of preferred stock for common stock $ 365.9 $ (318.3) ===================================================================================================================== Denominator: Denominator for basic earnings (loss) per share - weighted average shares outstanding 145,224,536 146,245,456 Effect of dilutive securities: Stock options 215,347 Exchangeable preferred stock 6,933 Convertible preferred stock 8,589,355 - --------------------------------------------------------------------------------------------------------------------- Dilutive potential common shares 8,811,635 - --------------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings (loss) per share - adjusted weighted average shares and assumed exchanges of preferred stock for common stock 154,036,171 146,245,456 ===================================================================================================================== Basic earnings (loss) per share $ 2.41 $ (2.18) ===================================================================================================================== Diluted earnings (loss) per share $ 2.38 $ (2.18) =====================================================================================================================
Options to purchase 7,785,507 weighted average shares of common stock which were outstanding during the nine months ended September 30, 2001 were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. For the nine months ended September 30, 2000, diluted earnings per share of common stock are equal to basic earnings per share of common stock due to the net loss. 9 2. INVENTORIES Major classes of inventory are as follows (certain amounts from prior year have been reclassified to conform to current year presentation):
Sept. 30, Dec. 31, Sept. 30, 2001 2000 2000 -------- -------- -------- Finished goods $ 596.4 $ 651.9 $ 645.4 Work in process 8.1 11.7 12.1 Raw materials 120.0 130.6 124.8 Operating supplies 68.4 68.2 80.3 -------- -------- -------- $ 792.9 $ 862.4 $ 862.6 ======== ======== ========
10 3. LONG-TERM DEBT The following table summarizes the long-term debt of the Company:
- -------------------------------------------------------------------------------------- Sept. 30, Dec. 31, Sept. 30, 2001 2000 2000 ---------- ---------- ---------- Secured Credit Agreement: Revolving Credit Facility $ 2,288.8 Term Loan 1,045.0 Second Amended and Restated Credit Agreement: Revolving Credit Facility: Revolving Loans $ 2,857.0 $ 2,814.3 Offshore Loans: Australian Dolllars 1.39 billion at December 31, 2000; 1.39 billion at September 30, 2000 775.3 802.3 British Pounds 125.0 million at December 31, 2000; 132.0 million at September 30, 2000 186.8 191.3 Italian Lira 18.0 billion at December 31, 2000; 32.0 billion at September 30, 2000 8.7 14.7 Senior Notes: 7.85%, due 2004 300.0 300.0 300.0 7.15%, due 2005 350.0 350.0 350.0 8.10%, due 2007 300.0 300.0 300.0 7.35%, due 2008 250.0 250.0 250.0 Senior Debentures: 7.50%, due 2010 250.0 250.0 250.0 7.80%, due 2018 250.0 250.0 250.0 Other 199.8 232.8 236.5 - -------------------------------------------------------------------------------------- 5,233.6 5,760.6 5,759.1 Less amounts due within one year 29.7 30.8 26.8 - -------------------------------------------------------------------------------------- Long-term debt $ 5,203.9 $ 5,729.8 $ 5,732.3 ======================================================================================
In April 2001, certain of the Company's subsidiaries (the "Borrowers") entered into the Secured Credit Agreement (the "Agreement') with a group of banks, which expires on March 31, 2004. The Agreement provides for a $3.0 billion revolving credit facility (the "Revolving Credit Facility") 11 and a $1.5 billion term loan (the "Term Loan"). The Agreement includes an Overdraft Account Facility providing for aggregate borrowings up to $50 million which reduce the amount available for borrowing under the Revolving Credit Facility. The Agreement also provides for the issuance of letters of credit totaling up to $500 million, which also reduce the amount available for borrowings under the Revolving Credit Facility. At September 30, 2001, the Company had unused credit of $621.4 million available under the Secured Credit Agreement. Prior to April 2001, the Company's significant bank financing was provided under the April 1998 Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement provided for a $4.5 billion revolving credit facility, which included a $1.75 billion fronted offshore loan revolving facility denominated in certain foreign currencies, subject to certain sublimits, available to certain of the Company's foreign subsidiaries. Borrowings under the Secured Credit Agreement were used to repay all amounts outstanding under, and terminate, the Second Amended and Restated Credit Agreement. The interest rate on borrowings under the Revolving Credit Facility is, at the Borrower's option, the Base Rate or a reserve adjusted Eurodollar rate. The interest rate on borrowings under the Revolving Credit Facility also includes a margin linked to the Company's Consolidated Leverage Ratio, as defined in the Agreement. The margin is limited to ranges of 1.75% to 2.00% for Eurodollar loans and .75% to 1.00% for Base Rate loans. The interest rate on Overdraft Account loans is the Base Rate minus .50%. The weighted average interest rate on borrowings outstanding under the Revolving Credit Facility at September 30, 2001 was 5.19%. While no compensating balances are required by the Agreement, the Borrowers must pay a facility fee on the Revolving Credit Facility commitments of .50%. The interest rate on borrowings under the Term Loan is, at the Borrowers' option, the Base Rate or a reserve adjusted Eurodollar rate. The interest rate on borrowings under the Term Loan also includes a margin of 2.50% for Eurodollar loans and 1.50% for Base Rate loans. The weighted average interest rate on borrowings outstanding under the Term Loan at September 30, 2001 was 5.15%. Borrowings under the Agreement are secured by substantially all of the assets of the Company's domestic subsidiaries and certain foreign subsidiaries. Borrowings are also secured by a pledge of intercompany debt and equity in most of the Company's domestic subsidiaries and certain stock of certain foreign subsidiaries. Under the terms of the Agreement, payments for redemption of shares of the Company's common stock are subject to certain limitations. Dividend payments with respect to the Company's Preferred or Common Stock may be impacted by certain covenants. The Agreement also requires, among other things, the maintenance of certain financial ratios, and restricts the creation of liens and certain types of business activities and investments. During the second quarter of 2001, the Company sought and received consent from the holders of a majority of the principal amount of each of its six series of senior notes and debentures to amend the indenture governing those securities. The amendments implement a previously announced offer by the Company and two of its principal subsidiaries to secure the Company's obligations under the indentures and the securities with a second lien on the intercompany debt and capital stock held by the two principal subsidiaries that own its glass container and plastics packaging businesses. In addition, the amendments also implement a previously announced offer by the two principal subsidiaries to guarantee the senior notes and debentures on a subordinated basis. 12 4. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTORS The following presents condensed consolidating financial information for the Company, segregating: (1) Owens-Illinois, Inc. which issued the six series of senior notes and debentures (the "Parent"); (2) the two subsidiaries which have guaranteed the senior notes and debentures on a subordinated basis (the "Guarantor Subsidiaries"); and (3) all other subsidiaries (the "Non-Guarantor Subsidiaries"). The guarantor subsidiaries are wholly-owned direct and indirect subsidiaries of the Company and their guarantees are full, unconditional and joint and several. They have no operations and function only as intermediate holding companies. Wholly-owned subsidiaries are presented on the equity basis of accounting. Certain reclassifications have been made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminating entries eliminate investments in subsidiaries and inter-company balances and transactions. The following unaudited information presents consolidating statements of operations, statements of cash flows, and balance sheets for the periods and as of the dates indicated. 13
September 30, 2001 ------------------------------------------------------------------------- Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------ ------------ ------------ ------------ Balance Sheet - -------------------------- Current assets: Accounts receivable $ -- $ -- $ 870.9 $ -- $ 870.9 Inventories 792.9 792.9 Other current assets 83.2 309.5 392.7 ---------- ---------- ---------- ---------- ---------- Total current assets 83.2 -- 1,973.3 -- 2,056.5 Investments in and ad- vances to subsidiaries 4,055.3 4,055.3 -- (8,110.6) -- Goodwill 2,919.3 2,919.3 Other non-current assets 59.1 1,801.8 1,860.9 ---------- ---------- ---------- ---------- ---------- Total other assets 4,114.4 4,055.3 4,721.1 (8,110.6) 4,780.2 Property, plant and equipment, net 3,089.7 3,089.7 ---------- ---------- ---------- ---------- ---------- Total assets $ 4,197.6 $ 4,055.3 $ 9,784.1 $ (8,110.6) $ 9,926.4 ========== ========== ========== ========== ========== Current liabilities : Accounts payable and accrued liabilities $ 47.4 $ -- $ 858.4 $ -- $ 905.8 Current portion of asbestos liability 220.0 220.0 Other current liabilities 108.6 108.6 ---------- ---------- ---------- ---------- ---------- Total current liabilities 267.4 -- 967.0 -- 1,234.4 Long-term debt 1,700.0 3,503.9 5,203.9 Asbestos-related liabilities 137.9 137.9 Other non-current liabilities (36.1) 1,257.9 1,221.8 Investment by and ad- vances from parent 4,055.3 4,055.3 (8,110.6) -- Share owners' equity 2,128.4 2,128.4 ---------- ---------- ---------- ---------- ---------- Total liabilities and share owners' equity $ 4,197.6 $ 4,055.3 $ 9,784.1 $ (8,110.6) $ 9,926.4 ========== ========== ========== ========== ==========
14
December 31, 2000 ---------------------------------------------------------------------------- Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------ ------------ ------------ ------------ Balance Sheet - ------------------------ Current assets: Accounts receivable $ -- $ -- $ 770.9 $ -- $ 770.9 Inventories 862.4 862.4 Other current assets 68.0 380.4 448.4 ---------- ---------- ----------- ----------- ----------- Total current assets 68.0 -- 2,013.7 -- 2,081.7 Investments in and ad- vances to subsidiaries 6,651.9 6,651.9 -- (13,303.8) -- Goodwill 3,101.0 3,101.0 Other non-current assets 226.7 1,648.9 1,875.6 ---------- ---------- ----------- ----------- ----------- Total other assets 6,878.6 6,651.9 4,749.9 (13,303.8) 4,976.6 Property, plant and equipment, net 3,284.9 3,284.9 ---------- ---------- ----------- ----------- ----------- Total assets $ 6,946.6 $ 6,651.9 $ 10,048.5 $ (13,303.8) $ 10,343.2 ========== ========== =========== =========== =========== Current liabilities : Accounts payable and accrued liabilities $ 23.9 $ -- $ 994.1 $ -- $ 1,018.0 Current portion of asbestos liability 180.0 180.0 Other current liabilities 120.0 120.0 ---------- ---------- ----------- ----------- ----------- Total current liabilities 203.9 -- 1,114.1 -- 1,318.0 Long-term debt 4,557.0 1,172.8 5,729.8 Asbestos-related liabilities 364.7 364.7 Other non-current liabilities (62.0) 1,109.7 1,047.7 Investment by and ad- vances from parent 6,651.9 6,651.9 (13,303.8) -- Share owners' equity 1,883.0 1,883.0 ---------- ---------- ----------- ----------- ----------- Total liabilities and share owners' equity $ 6,946.6 $ 6,651.9 $ 10,048.5 $ (13,303.8) $ 10,343.2 ========== ========== =========== =========== ===========
15
September 30, 2000 ---------------------------------------------------------------------------- Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------ ------------ ------------ ------------ Balance Sheet - -------------------------- Current assets: Accounts receivable $ -- $ -- $ 912.6 $ -- $ 912.6 Inventories 862.6 862.6 Other current assets 68.0 265.9 333.9 ---------- ---------- ----------- ----------- ----------- Total current assets 68.0 -- 2,041.1 -- 2,109.1 Investments in and ad- vances to subsidiaries 6,649.1 6,649.1 -- (13,298.2) -- Goodwill 3,129.9 3,129.9 Other non-current assets 231.8 1,651.1 1,882.9 ---------- ---------- ----------- ----------- ----------- Total other assets 6,880.9 6,649.1 4,781.0 (13,298.2) 5,012.8 Property, plant and equipment, net 3,286.7 3,286.7 ---------- ---------- ----------- ----------- ----------- Total assets $ 6,948.9 $ 6,649.1 $ 10,108.8 $ (13,298.2) $ 10,408.6 ========== ========== =========== =========== =========== Current liabilities : Accounts payable and accrued liabilities $ 55.5 $ -- $ 924.2 $ -- $ 979.7 Current portion of- asbestos-liability 180.0 180.0 Other current liabilities 139.6 139.6 ---------- ---------- ----------- ----------- ----------- Total current liabilities 235.5 -- 1,063.8 -- 1,299.3 Long-term debt 4,505.0 1,227.3 5,732.3 Asbestos-related liabilities 426.6 426.6 Other non-current liabilities (84.4) 1,168.6 1,084.2 Investment by and ad- vances from parent 6,649.1 6,649.1 (13,298.2) -- Share owners' equity 1,866.2 1,866.2 ---------- ---------- ----------- ----------- ----------- Total liabilities and share owners' equity $ 6,948.9 $ 6,649.1 $ 10,108.8 $ (13,298.2) $ 10,408.6 ========== ========== =========== =========== ===========
16
Three Months Ended September 30, 2001 ------------------------------------------------------------------ Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ Results of Operations - ------------------------------ Net sales $ -- $ -- $ 1,360.2 $ -- $ 1,360.2 Interest 33.3 78.3 6.3 (111.6) 6.3 Equity earnings 69.3 24.4 4.8 (93.7) 4.8 Other revenue 12.5 12.5 -------- -------- ---------- -------- ---------- Total revenue 102.6 102.7 1,383.8 (205.3) 1,383.8 Manufacturing, shipping, and delivery 1,036.9 1,036.9 Other selling and administrative costs 118.2 118.2 Interest expense 33.0 33.3 150.4 (111.6) 105.1 -------- -------- ---------- -------- ---------- Total costs and expense 33.0 33.3 1,305.5 (111.6) 1,260.2 Earnings before items below 69.6 69.4 78.3 (93.7) 123.6 Provision for income taxes 0.2 0.1 47.3 47.6 Minority share owners' interests in earnings of subsidiaries 6.6 6.6 -------- -------- ---------- -------- ---------- Net income (loss) $ 69.4 $ 69.3 $ 24.4 $ (93.7) $ 69.4 ======== ======== ========== ======== ==========
17
Three Months Ended September 30, 2000 ---------------------------------------------------------------------- Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ Results of Operations - ----------------------------- Net sales $ -- $ -- $ 1,430.3 $ -- $ 1,430.3 Interest 88.2 149.5 8.4 (237.7) 8.4 Equity earnings (109.1) (164.4) 6.3 273.5 6.3 Other revenue -- 47.3 47.3 -------- -------- ---------- -------- ---------- Total revenue (20.9) (14.9) 1,492.3 35.8 1,492.3 Manufacturing, shipping, and delivery 1,126.4 1,126.4 Other selling and administrative costs 550.0 385.8 935.8 Interest expense 90.8 88.2 182.9 (237.7) 124.2 -------- -------- ---------- -------- ---------- Total costs and expense 640.8 88.2 1,695.1 (237.7) 2,186.4 Earnings before items below (661.7) (103.1) (202.8) 273.5 (694.1) Provision for income taxes (212.5) 6.0 (40.9) (247.4) Minority share owners' interests in earnings of subsidiaries 2.5 2.5 -------- -------- ---------- -------- ---------- Net income (loss) $ (449.2) $ (109.1) $ (164.4) $ 273.5 $ (449.2) ======== ======== ========== ======== ==========
18
Nine Months Ended September 30, 2001 ------------------------------------------------------------------------- Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ Results of Operations - ---------------------------- Net sales $ -- $ -- $ 4,056.1 $ -- $ 4,056.1 Interest 164.1 210.0 21.2 (374.1) 21.2 Equity earnings 367.5 322.0 13.7 (689.5) 13.7 Other revenue 550.6 550.6 -------- -------- ---------- ---------- ---------- Total revenue 531.6 532.0 4,641.6 (1,063.6) 4,641.6 Manufacturing, shipping, and delivery 3,147.9 3,147.9 Other selling and administrative costs 511.6 511.6 Interest expense 166.6 164.1 378.9 (374.1) 335.5 -------- -------- ---------- ---------- ---------- Total costs and expense 166.6 164.1 4,038.4 (374.1) 3,995.0 Earnings before items below 365.0 367.9 603.2 (689.5) 646.6 Provision for income taxes (0.9) 0.4 268.4 267.9 Minority share owners' interests in earnings of subsidiaries 12.8 12.8 -------- -------- ---------- ---------- ---------- Earnings before extraordinary item 365.9 367.5 322.0 (689.5) 365.9 Extraordinary charge (4.1) (4.1) (4.1) 8.2 (4.1) -------- -------- ---------- ---------- ---------- Net income (loss) $ 361.8 $ 363.4 $ 317.9 $ (681.3) $ 361.8 ======== ======== ========== ========== ==========
19
Nine Months Ended September 30, 2000 ----------------------------------------------------------------------------------- Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------- -------------- --------------- -------------------------------- Results of Operations - ---------------------------- Net sales $ -- $ -- $ 4,225.1 $ -- $ 4,225.1 Interest 252.5 298.1 23.4 (550.6) 23.4 Equity earnings 42.2 (6.3) 14.6 (35.9) 14.6 Other revenue 4.8 153.6 158.4 ---------- ---------- ---------- -------- ---------- Total revenue 294.7 296.6 4,416.7 (586.5) 4,421.5 Manufacturing, shipping, and delivery 3,279.9 3,279.9 Other selling and administrative costs 550.0 670.5 1,220.5 Interest expense 261.7 252.5 397.2 (550.6) 360.8 ---------- ---------- ---------- -------- ---------- Total costs and expense 811.7 252.5 4,347.6 (550.6) 4,861.2 Earnings before items below (517.0) 44.1 69.1 (35.9) (439.7) Provision for income taxes (215.0) 1.9 66.5 (146.6) Minority share owners' interests in earnings of subsidiaries 8.9 8.9 ---------- ---------- ---------- -------- ---------- Net income (loss) $ (302.0) $ 42.2 $ (6.3) $ (35.9) $ (302.0) ========== ========== ========== ======== ==========
20
Nine Months Ended September 30, 2001 --------------------------------------------------------------- Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ Cash Flows - -------------------------- Cash provided by (used in) operating activities $ 13.4 $ 45.5 $ 212.9 $ -- $ 271.8 Cash provided by (used in) investing activities 219.2 219.2 Cash provided by (used in) financing activities (13.4) (45.5) (458.5) (517.4) Effect of exchange rate change on cash (29.0) (29.0) ------- ------- -------- ----- -------- Net change in cash -- -- (55.4) -- (55.4) Cash at beginning of period 229.7 229.7 ------- ------- -------- ----- -------- Cash at end of period $ -- $ -- $ 174.3 $ -- $ 174.3 ======= ======= ======== ===== ========
21
Nine Months Ended September 30, 2000 ------------------------------------------------------------------- Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ Cash Flows - ------------------------- Cash provided by (used in) operating activities $ (41.7) $ 43.7 $ 284.4 $ -- $ 286.4 Cash provided by (used in) investing activities -- 12.5 (392.5) -- (380.0) Cash provided by (used in) financing activities 41.7 (56.2) 28.1 -- 13.6 Effect of exchange rate change on cash -- -- (13.5) -- (13.5) ------- ------- -------- ------ -------- Net change in cash -- -- (93.5) -- (93.5) Cash at beginning of period -- -- 257.1 -- 257.1 ------- ------- -------- ------ -------- Cash at end of period $ -- $ -- $ 163.6 $ -- $ 163.6 ======= ======= ======== ====== ========
5. CASH FLOW INFORMATION Interest paid in cash aggregated $279.0 million and $323.3 million for the nine months ended September 30, 2001 and September 30, 2000, respectively. Income taxes paid in cash totaled $45.1 million and $39.3 million for the nine months ended September 30, 2001 and 2000, respectively. 6. COMPREHENSIVE INCOME The Company's components of comprehensive income (loss) are net earnings (loss), change in fair value of certain derivative adjustments, and foreign currency translation adjustments. Total comprehensive income (loss) for the three month periods ended September 30, 2001 and 2000 amounted to $79.6 million and $(485.4) million, respectively. Total comprehensive income (loss) for the nine month periods ended September 30, 2001 and 2000 amounted to $258.4 million and $(457.5) million, respectively. 22 7. CONTINGENCIES The Company is one of a number of defendants (typically from 20 to 100 or more) in a substantial number of lawsuits filed in numerous state and federal courts by persons alleging bodily injury (including death) as a result of exposure to dust from asbestos fibers. From 1948 to 1958, one of the Company's former business units commercially produced and sold approximately $40 million of a high-temperature, clay-based insulating material containing asbestos. The Company exited the insulation business in April 1958. The traditional asbestos personal injury lawsuits and claims relating to such production and sale of asbestos material typically allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and punitive damages in various amounts (herein referred to as "asbestos claims"). As of September 30, 2001 the Company estimates that it is a named defendant in asbestos lawsuits and claims involving approximately 27,000 plaintiffs and claimants. Additionally, the Company has claims-handling agreements in place with many plaintiff's counsel throughout the country. These agreements require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by such agreements. The criteria for such claims include verification of a compensable illness, exposure to a product manufactured by the Company's former business unit during its manufacturing period ending in 1958, and viability of such claims under applicable statutes of limitations. The Company believes that the bankruptcies of additional co-defendants, as discussed below, have resulted in an acceleration of the presentation and disposition of a number of claims under such agreements, which claims would otherwise have been presented and disposed of over the next several years. This acceleration is reflected in an increased number of pending asbestos claims and to the extent disposed, contributes to an increase in asbestos-related payments. The Company is also a defendant in other asbestos-related lawsuits or claims involving maritime workers, medical monitoring claimants, co-defendants and property damage claimants. Based on its past experience, the Company believes that these categories of claims will not involve any material liability and they are not included in the above description of pending claims. The Company believes that its ultimate asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related litigation expenses) cannot be estimated with certainty. In 1993, the Company established a liability of $975 million to cover indemnity payments and legal fees associated with the resolution of outstanding and expected future asbestos lawsuits and claims. In 1998, an additional liability of $250 million was established. After establishing the additional liability in 1998, the Company continued to monitor the trends of matters which may affect its ultimate liability and continued to analyze the trends, developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against the Company. The number of asbestos lawsuits and claims pending and filed against the Company since 1998 has exceeded the number estimated at that time. The trend of costs to resolve lawsuits and claims since 1998 has also been unfavorable compared to expectations. In addition, during 2000, Pittsburgh-Corning, Babcock & Wilcox, Owens Corning, and Fibreboard Corporation sought protection under Chapter 11 of the Bankruptcy Code and during 2001, Armstrong World Industries, W.R. Grace & Co., G-I Holdings (GAF), USG Corporation, and Federal-Mogul Corporation sought protection under Chapter 11 of the Bankruptcy Code. During the third quarter of 2000, the Company conducted a comprehensive review to determine whether further adjustments of asbestos-related assets or liabilities were appropriate. As a result of that review, as of September 30, 2000, the Company established an additional liability 23 of $550 million to cover the Company's estimated indemnity payments and legal fees arising from outstanding asbestos personal injury lawsuits and claims and asbestos personal injury lawsuits and claims filed in the ensuing several years, during which period the Company expects to receive the majority of the future asbestos-related lawsuits and claims that could involve the Company. The Company expects its asbestos-related payments for the year ended December 31, 2001, to be between $240 million and $250 million. The Company expects that total payments in 2002 will be moderately lower. The Company will continue to monitor trends which may affect its ultimate liability. If trends in 2002 do not improve significantly, the Company will conduct a comprehensive review to determine whether further adjustments of asbestos-related liabilities are appropriate. Based on all the factors and matters relating to the Company's asbestos-related lawsuits and claims, the Company presently believes that its asbestos-related costs and liabilities, to the extent it is able reasonably to estimate such costs and liabilities, will not exceed by a material amount the sum of the available insurance reimbursement the Company believes it has and will have and the amount of the charges for asbestos-related costs described above. 8. SEGMENT INFORMATION The Company operates in the rigid packaging industry. The Company has two reportable product segments within the rigid packaging industry: (1) Glass Containers and (2) Plastics Packaging. The Plastics Packaging segment consists of three business units -- plastic containers, closure and specialty products, and prescription products. The Other segment consists primarily of the Company's labels and carriers products business unit, substantially all of which was divested in early 2001. The Company evaluates performance and allocates resources based on earnings before interest income, interest expense, provision for income taxes, minority share owners' interests in earnings of subsidiaries, and extraordinary charges, (collectively "EBIT") excluding unusual items. EBIT for product segments includes an allocation of corporate expenses based on both a percentage of sales and direct billings based on the costs of specific services provided. Certain amounts from prior year have been reclassified to conform to current year presentation. 24 Financial information for the three-month periods ended September 30, 2001 and 2000 regarding the Company's product segments is as follows:
- ----------------------------------------------------------------------------------------------------------- Elimina- tions Total and Consoli- Glass Plastics Product Other dated Containers Packaging Other Segments Retained Totals - ----------------------------------------------------------------------------------------------------------- Net sales: Sept. 30, 2001 $ 898.1 $ 459.9 $ 2.2 $ 1,360.2 $ 1,360.2 Sept. 30, 2000 948.2 465.5 16.6 1,430.3 1,430.3 =========================================================================================================== EBIT, excluding unusual items: Sept. 30, 2001 $ 165.7 $ 72.8 $ (0.9) $ 237.6 $ (15.2) $ 222.4 Sept. 30, 2000 145.1 66.9 0.9 212.9 7.1 220.0 =========================================================================================================== Unusual items: Sept. 30, 2000 Adjustment of reserve for estimated future asbestos- related costs $ (550.0) $ (550.0) Charges related to consolidation of manufacturing capacity $ (120.4) $ (2.0) $ (122.4) (122.4) Charges related to early retirement incentives and special termination benefits (22.0) (9.2) (31.2) (21.2) (52.4) Charges related to impairment of property, plant and equipment in India (40.0) (40.0) (40.0) Other charges, principally related to the write-off of software (3.6) (3.6) (29.9) (33.5) ===========================================================================================================
25 The reconciliation of EBIT to earnings (loss) before income taxes and minority share owners' interests in earnings of subsidiaries for the three-month periods ended September 30, 2001 and 2000 is as follows:
- ----------------------------------------------------------------------------------------------------- Sept. 30, 2001 Sept. 30, 2000 - ----------------------------------------------------------------------------------------------------- EBIT, excluding unusual items for reportable segments $ 237.6 $ 212.9 Unusual items excluded from reportable segment information (197.2) Eliminations and other retained, excluding unusual items (15.2) 7.1 Unusual items excluded from eliminations and other retained (601.1) Net interest expense (98.8) (115.8) - ----------------------------------------------------------------------------------------------------- Total $ 123.6 $ (694.1) =====================================================================================================
26 Financial information for the nine-month periods ended September 30, 2001 and 2000 regarding the Company's product segments is as follows:
- --------------------------------------------------------------------------------------------------------------- Elimina- tions Total and Consoli- Glass Plastics Product Other dated Containers Packaging Other Segments Retained Totals - --------------------------------------------------------------------------------------------------------------- Net sales: Sept. 30, 2001 $ 2,639.0 $ 1,405.2 $ 11.9 $ 4,056.1 $ 4,056.1 Sept. 30, 2000 2,784.2 1,387.1 53.8 4,225.1 4,225.1 =============================================================================================================== EBIT, excluding unusual items: Sept. 30, 2001 $ 440.4 $ 209.2 $ (2.6) $ 647.0 $ (37.2) $ 609.8 Sept. 30, 2000 460.7 212.9 3.0 676.6 19.4 696.0 =============================================================================================================== Unusual items: Sept. 30, 2001 Gain on the sale of a minerals business in Australia $ 10.3 $ 10.3 $ 10.3 Gain on the sale of the Company's label business $ 2.8 2.8 2.8 Gain on the sale of the Company's Harbor Capital business $ 457.3 457.3 Restructuring and impairment charges (64.3) $ (15.6) (79.9) (79.9) Special employee benefit programs (7.6) (3.5) (11.1) (19.8) (30.9) Contingencies related to a previous acquisition (8.5) (8.5) (8.5) ===============================================================================================================
27
- ----------------------------------------------------------------------------------------------------------- Elimina- tions Total and Consoli- Glass Plastics Product Other dated Containers Packaging Other Segments Retained Totals - ----------------------------------------------------------------------------------------------------------- Unusual items: Sept. 30, 2000 Adjustment of reserve for estimated future asbestos- related costs -- -- - -- $ (550.0) $ (550.0) Charges related to consolidation of manufacturing capacity $ (120.4) $ (2.0) - $ (122.4) -- (122.4) Charges related to early retirement incentives and special termination benefits (22.0) (9.2) - (31.2) (21.2) (52.4) Charges related to impairment of property, plant and equipment in India (40.0) -- - (40.0) -- (40.0) Other charges, principally related to the write-off of software (3.6) -- - (3.6) (29.9) (33.5) ===========================================================================================================
28 The reconciliation of EBIT to earnings (loss) before income taxes and minority share owners' interests in earnings of subsidiaries for the nine-month periods ended September 30, 2000 and 1999 is as follows:
- ----------------------------------------------------------------------------------------------------- Sept. 30, 2001 Sept. 30, 2000 - ----------------------------------------------------------------------------------------------------- EBIT, excluding unusual items for reportable segments $ 647.0 $ 676.6 Unusual items excluded from reportable segment information (86.4) (197.2) Eliminations and other retained, excluding unusual items (37.2) 19.4 Unusual items excluded from eliminations and other retained 437.5 (601.1) Net interest expense (314.3) (337.4) - ----------------------------------------------------------------------------------------------------- Total $ 646.6 $ (439.7) =====================================================================================================
9. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("FAS No. 141") which is effective for business combinations completed after June 30, 2001. Also in July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"), which is effective for goodwill acquired after June 30, 2001. For goodwill acquired prior to June 30, 2001, FAS No. 142 will be effective for fiscal years beginning after December 15, 2001. Under FAS No. 142, goodwill and intangible assets with indefinite lives will no longer be amortized but will be reviewed annually (or more frequently if impairment indicators arise) for impairment. The Company has not assessed the impact on earnings that the elimination of the amortization of goodwill will have on future earnings nor the effect that the impairment test will have on recorded goodwill. As provided in FAS No. 142, impairment testing will be completed during 2002. 10. RESTRUCTURING ACCRUALS In the second quarter of 2001, the Company recorded charges of $79.9 million, principally related to restructuring and impairment at certain of the Company's international and domestic operations. The majority of the charges ($48.4 million) relates to the impairment of assets at the Company's affiliate in Puerto Rico and the consolidation of manufacturing capacity and the closing of a facility in Venezuela. The balance of the charges principally relates to consolidation of capacity at certain domestic and international facilities in response to decisions about pricing and market strategy. The Company expects its actions related to these restructuring and impairment charges to be completed during the next several quarters. In the third quarter of 2000, the Company recorded a charge of $122.4 million for capacity realignment and consolidation. The manufacturing capacity consolidations principally involved the closing of three U.S. glass container facilities and reflect technology-driven improvements in productivity, conversions from some juice and similar products to plastic containers, Company and customer decisions regarding pricing and volume, and the further concentration of production in the most strategic facilities. The Company expects that it will continue to make 29 cash payments over the next several quarters for severance, benefits, and on-going closing costs related to the closing of these facilities. Selected information relating to the restructuring accruals follows:
Third Second Quarter of Quarter of 2000 2001 charges charges Total ---------- ---------- -------- Accrual as of June 30, 2001 $ 36.4 $ 9.2 $ 45.6 Restructuring charges -- -- -- Write-down of assets to net realizable value (2.0) -- (2.0) Net cash paid (3.1) (1.0) (4.1) ------- ------ ------- Remaining accrual as of September 30, 2001 $ 31.3 $ 8.2 $ 39.5 ======= ====== =======
11. DERIVATIVE INSTRUMENTS The terms of the Company's former bank credit agreement provided for foreign currency borrowings by certain of its international affiliates. Such borrowings provided a natural hedge against a portion of the Company's investment. Under the April 2001 Secured Credit Agreement, international affiliates are only permitted to borrow in U.S. dollars. The Company's affiliates in Australia and the United Kingdom have entered into currency swaps covering their initial borrowings under the Agreement. These swaps are being used to manage the affiliates exposure to fluctuating foreign exchange rates by swapping the principal and interest payments due under the Secured Credit Agreement. As of September 30, 2001, the Company's affiliate in Australia has swapped $650.0 million of borrowings into $1,275.0 million Australian dollars. This swap matures on March 31, 2003, with interest resets every 90 days. The interest reset terms of the swap approximate the terms of the U.S. dollar borrowings. This derivative instrument swaps both the interest and principal from U.S. dollars to Australian dollars. The Company's affiliate in the United Kingdom has swapped $200.0 million of borrowings into 139.0 million British pounds. This swap also matures on March 31, 2003, with interest resets every 90 days. This derivative instrument swaps both the interest and principal from U.S. dollars to British pounds. The Company recognizes all derivatives on the balance sheet at fair value. The Company accounts for the above swaps as fair value hedges. As such, the changes in the value of the swaps are included in other expense and are expected to substantially offset any exchange rate gains or losses on the related U.S. dollar borrowings. For the three and nine months ended September 30, 2001, the amount not offset was immaterial. The Company also uses commodity futures contracts related to forecasted future natural gas requirements. The objective of these futures contracts is to limit the fluctuations in prices paid 30 and the potential volatility in earnings or cash flows from future price movements. During the third quarter of 2001, the Company entered into commodity futures contracts for approximately 25% of its domestic natural gas usage (approximately 400 million BTUs) over a nine-month period. The Company accounts for the above futures contracts on the balance sheet at fair value. The effective portion of changes in the fair value of a derivative that is designated as and meets the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income ("OCI") and reclassified into earnings in the same period or periods during which the underlying hedged item affects earnings. The above futures contracts are accounted for as cash flow hedges at September 30, 2001. Hedge accounting is only applied when the derivative is deemed to be highly effective at offsetting anticipated cash flows of the hedged transactions. For hedged forecasted transactions, hedge accounting will be discontinued if the forecasted transaction is no longer probable to occur, and any previously deferred gains or losses will be recorded to earnings immediately. During the three months ended September 30, 2001, an unrealized net loss of $1.5 million (net of tax) related to these commodity futures contracts was included in OCI. The ineffectiveness portion of the change in the fair value of a derivative designated as a cash flow hedge is recognized in current earnings. There was no ineffectiveness recognized during the third quarter of 2001. 31 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS - THIRD QUARTER 2001 COMPARED WITH THIRD QUARTER 2000 The Company recorded net earnings of $69.4 million for the third quarter of 2001 compared to a net loss of $449.2 million for the third quarter of 2000. Excluding the effects of the 2000 unusual items discussed below, the Company's third quarter 2001 earnings of $69.4 million increased $5.5 million, or 8.6% from 2000 third quarter earnings of $63.9 million. Consolidated EBIT for the third quarter of 2001 was $222.4 million, an increase of $2.4 million, or 1.1%, compared to the third quarter of 2000 EBIT of $220.0 million, excluding unusual items. The increase is attributable to higher EBIT for both the Glass Containers and Plastics Packaging segments, partially offset by a net increase in other retained costs as discussed further below. Interest expense, net of interest income, decreased $17.0 million from the 2000 period due principally to lower interest rates and reduced debt levels. Capsule segment results (in millions of dollars) for the second quarter of 2001 and 2000 were as follows:
- -------------------------------------------------------------------------------------- Net sales (Unaffiliated customers) EBIT (a) - -------------------------------------------------------------------------------------- 2001 2000 2001 2000(b) ---------- ---------- -------- ------------- Glass Containers $ 898.1 $ 948.2 $ 165.7 $ (40.9) Plastics Packaging 459.9 465.5 72.8 55.7 Other 2.2 16.6 (0.9) 0.9 - -------------------------------------------------------------------------------------- Segment totals 1,360.2 1,430.3 237.6 15.7 Eliminations and other retained costs -- -- (15.2) (594.0) - -------------------------------------------------------------------------------------- Consolidated totals $ 1,360.2 $ 1,430.3 $ 222.4 $ (578.3) ======================================================================================
(a) EBIT consists of consolidated earnings before interest income, interest expense, provision for income taxes, and minority share owners' interests in earnings of subsidiaries. (b) Amount for the three months ended September 30, 2000 includes charges totaling $798.3 million for the following: (1) $550.0 million related to adjustment of the reserve for estimated future asbestos-related costs; (2) $122.4 million related to the consolidation of manufacturing capacity; (3) a net charge of $52.4 million related to early retirement incentives and special termination benefits for 350 United States salaried employees; (4) $40.0 million related to the impairment of property, plant and equipment at the Company's facilities in India; and (5) $33.5 million related principally to the write-off of software and related development costs. Such items are included as follows in consolidated EBIT for the three months ended September 30, 2000: 32 Glass Containers $ 186.0 Plastics Packaging 11.2 -------- Total Product Segments 197.2 Eliminations and other retained costs 601.1 -------- Consolidated Totals $ 798.3 ========
Consolidated net sales for the third quarter of 2001 decreased $70.1 million, or 4.9%, from the prior year. Net sales of the Glass Containers segment decreased $50.1 million, or 5.3%, from 2000. In the United States, decreased sales were due in part to lower shipments of beer containers and conversions of certain juice and iced tea from glass to plastic containers. The combined U.S. dollar sales of the segment's foreign affiliates decreased from the prior year. Increased shipments from the Company's operations throughout most of South America and parts of Europe were more than offset by the effects of a strong U.S. dollar and lower shipments from most of the Company's operations in the Asia Pacific region. The effect of changing foreign currency exchange rates reduced U.S. dollar sales of the segment's foreign affiliates by approximately $35 million. Net sales of the Plastics Packaging segment decreased $5.6 million, or 1.2%, from 2000. Increased shipments of plastic containers for food and health care and closures for beverages, food, and health care were more than offset by lower shipments of plastic containers for beverages and the effect of changing foreign currency exchange rates, principally in Australia. Excluding the effects of the 2000 unusual items, segment EBIT for the third quarter of 2001 increased $24.7 million, or 11.6%, to $237.6 million from the 2000 segment EBIT of $212.9 million. EBIT of the Glass Containers segment increased $20.6 million to $165.7 million, compared to $145.1 million in 2000. The combined U.S. dollar EBIT of the segment's foreign affiliates increased from prior year. Increased shipments from the Company's operations throughout most of South America and parts of Europe were partially offset by the effects of a strong U.S. dollar, principally in Australia and Brazil, and lower shipments from the Company's operations in the Asia Pacific region. In the United States, Glass Container EBIT increased from 2000 principally due to improved pricing, favorable product mix, and lower energy costs. EBIT of the Plastics Packaging segment increased $5.9 million, or 8.8%, to $72.8 million compared to $66.9 million in 2000. Increased shipments of plastic containers for food and health care and closures for beverages and food, as well as a shift to a more favorable product mix, were partially offset by lower shipments of plastic containers for beverages and personal care. Eliminations and other retained costs declined $22.3 million from 2000 reflecting lower net financial services income due to the sale of the Company's Harbor Capital business and certain employee benefit costs increases. The third quarter of 2000 includes pretax charges totaling $798.3 million ($513.1 million after tax and minority share owners' interests) for the following: (1) $550.0 million ($342.1 million after tax) related to adjustment of the reserve for estimated future asbestos-related costs; (2) $122.4 million ($77.3 million after tax and minority share owners' interests) related to the consolidation of manufacturing capacity; (3) a net charge of $52.4 million ($32.6 million after tax) related to early retirement incentives and special termination benefits for 350 United States salaried employees; (4) $40.0 million ($40.0 million after tax) related to the impairment of property, plant and equipment at the Company's facilities in India; and (5) $33.5 million ($21.1 million after tax and minority share owners' interests) related principally to the write-off of software and related development costs. 33 FIRST NINE MONTHS 2001 COMPARED WITH FIRST NINE MONTHS 2000 For the first nine months of 2001, the Company recorded earnings before extraordinary items of $365.9 million compared to a net loss of $302.0 million for the first nine months of 2000. Net earnings of $361.8 million for 2001 reflect $4.1 million of extraordinary charges from the early extinguishment of debt. Excluding the effects of the 2001 and 2000 unusual items, the Company's first nine months of 2001 earnings of $166.9 million decreased $44.2 million, or 20.9% from 2000 first nine months earnings of $211.1 million. Consolidated EBIT for the first nine months of 2001, excluding unusual items, was $609.8 million, a decrease of $86.2 million, or 12.4%, compared to the first nine months of 2000 EBIT, excluding unusual items, of $696.0 million. The decrease is largely attributable to lower EBIT for both the Glass Containers and Plastics Packaging segments, as discussed below. Interest expense, net of interest income and unusual items, decreased $27.1 million from the 2000 period due principally to lower interest rates and decreased levels of debt. The Company's estimated effective tax rate for the first nine months of 2001, excluding unusual items, was 38.5%. This compares with an estimated rate, excluding unusual items, of 38.5% for the first nine months of 2000 and the actual rate of 36.9% for the full year of 2000, excluding unusual items. The increase in the 2001 estimated rate compared to the full year of 2000 is primarily the result of the non-recurrence of certain international and domestic tax benefits and credits. Capsule segment results (in millions of dollars) for the first nine months of 2001 and 2000 were as follows:
- ------------------------------------------------------------------------------------ Net sales (Unaffiliated customers) EBIT (a) - ------------------------------------------------------------------------------------ 2001 2000 2001 (b) 2000 (c) ---------- ---------- --------- --------- Glass Containers $ 2,639.0 $ 2,784.2 $ 378.8 $ 274.7 Plastics Packaging 1,405.2 1,387.1 181.6 201.7 Other 11.9 53.8 0.2 3.0 - ------------------------------------------------------------------------------------ Segment totals 4,056.1 4,225.1 560.6 479.4 Eliminations and other retained costs 400.3 (581.7) - ------------------------------------------------------------------------------------ Consolidated totals $ 4,056.1 $ 4,225.1 $ 960.9 $ (102.3) ====================================================================================
(a) EBIT consists of consolidated earnings before interest income, interest expense, provision for income taxes, and minority share owners' interests in earnings of subsidiaries. (b) Amount for the nine months ended September 30, 2001 includes a net gain of $351.1 million related to the following: (1) A gain of $457.3 million related to the sale of the Company's Harbor Capital business; (2) Charges of $79.9 million related to restructuring and impairment charges at certain of the Company's international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international 34 operations; (3) Charges of $30.9 million related to special employee benefit programs; (4) A charge of $8.5 million for contingencies related to a previous acquisition; (5) A gain of $10.3 million from the sale of a minerals business in Australia; (6) A gain of $2.8 million from the sale of the Company's labels business. Such charges (gains) are included as follows in consolidated EBIT for the nine months ended September 30, 2001: Glass Containers $ 61.6 Plastics Packaging 27.6 Other (2.8) -------- Total Product Segments 86.4 Eliminations and other retained costs (437.5) -------- Consolidated Totals $ (351.1) ========
(c) Amount for the nine months ended September 30, 2000 includes charges totaling $798.3 million for the following: (1) $550.0 million related to adjustment of the reserve for estimated future asbestos-related costs; (2) $122.4 million related to the consolidation of manufacturing capacity; (3) a net charge of $52.4 million related to early retirement incentives and special termination benefits for 350 United States salaried employees; (4) $40.0 million related to the impairment of property, plant and equipment at the Company's facilities in India; and (5) $33.5 million related principally to the write-off of software and related development costs. These items were recorded in the third quarter of 2000. Such items are included as follows in consolidated EBIT for the nine months ended September 30, 2000: Glass Containers $ 186.0 Plastics Packaging 11.2 -------- Total Product Segments 197.2 Eliminations and other retained costs 601.1 -------- Consolidated Totals $ 798.3 ========
Consolidated net sales for the first nine months of 2001 decreased $169.0 million, or 4.0%, from the prior year. Net sales of the Glass Containers segment decreased $145.2 million, or 5.2%, from 2000. In the United States, decreased sales were due in part to lower shipments of beer containers and conversions of certain juice and iced tea from glass to plastic containers. The combined U.S. dollar sales of the segment's foreign affiliates decreased from the prior year. Increased shipments from the Company's operations throughout most of Europe and South America were more than offset by the effects of a strong U.S. dollar and lower shipments from most of the Company's operations in the Asia Pacific region. The effect of changing foreign currency exchange rates reduced U.S. dollar sales of the segment's foreign affiliates by 35 approximately $135 million. Net sales of the Plastics Packaging segment increased $18.1 million, or 1.3%, over 2000, reflecting increased shipments of plastic containers and closures for food and health care and the effects of higher resin costs on pass-through arrangements with customers, partially offset by lower shipments of plastic containers for juice and other beverages and the effect of changing foreign currency exchange rates, principally in Australia. The effects of higher resin costs increased sales by approximately $34 million compared to the first nine months of 2000. Excluding the effects of the 2001 and 2000 unusual items, segment EBIT for the first half of 2001 decreased $29.6 million, or 4.4%, to $647.0 million from the 2000 segment EBIT of $676.6 million. EBIT of the Glass Containers segment decreased $20.3 million, or 4.4%, to $440.4 million, compared to $460.7 million in 2000. The combined U.S. dollar EBIT of the segment's foreign affiliates increased from prior year. Increased shipments from the Company's operations throughout most of Europe and South America were partially offset by the effects of a strong U.S. dollar, higher energy costs worldwide, and lower shipments from the Company's operations in the Asia Pacific region. In the United States, Glass Container EBIT decreased from 2000 principally due to higher energy costs, which have not been fully recovered through price adjustments. EBIT of the Plastics Packaging segment decreased $3.7 million, or 1.7%, to $209.2 million, compared to $212.9 million in 2000. Increased shipments of plastic containers and closures for food and health care were more than offset by lower shipments of plastic containers for juice and other beverages and one-time costs associated with the relocation of a U.S. manufacturing operation to a new and larger facility to accommodate a growing business base. Eliminations and other retained costs declined $56.6 million from 2000 reflecting lower net financial services income due to the sale of the Company's Harbor Capital business and certain employee benefit costs increases. The first nine months of 2001 includes pretax gains recorded in the first quarter totaling $13.1 million ($12.0 million after tax) related to the sale of the Company's label business and the sale of a minerals business in Australia. The first nine months of 2001 earnings before extraordinary items also includes the following unusual and other largely one-time items recorded in the second quarter: (1) A gain of $457.3 million ($284.4 million after tax) related to the sale of the Company's Harbor Capital Advisors business; (2) Charges of $30.9 million ($19.4 million after tax) related to special employee benefit programs; (3) A net interest charge of $4.0 million ($2.8 million after tax) related to interest on the resolution of the transfer of pension assets and liabilities for a previous acquisition and divestiture; (4) Charges of $79.9 million ($63.9 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain of the Company's international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (5) A charge of $8.5 million ($5.3 million after tax) for contingencies related to a previous acquisition; (6) A $6.0 million charge to adjust tax liabilities in Italy as a result of recent legislation. RESTRUCTURING AND IMPAIRMENT CHARGE The first nine months of 2001 operating results include a pretax charge of $79.9 million recorded in the second quarter, principally related to a restructuring program and impairment at certain of the Company's international and domestic operations. The charge includes the impairment of assets at the Company's affiliate in Puerto Rico and the consolidation of manufacturing capacity and the closing of a facility in Venezuela. The program includes consolidation of capacity at certain other international and domestic facilities in response to decisions about pricing and 36 market strategy. The Company expects its actions related to these restructuring and impairment charges to be completed during the next several quarters. The first nine months of 2000 operating results included a pretax charge of $248.3 million recorded in the third quarter, principally related to a restructuring and capacity realignment program. The restructuring and capacity realignment program, initiated in the third quarter of 2000, included the consolidation of manufacturing capacity and a reduction of 350 employees in the U.S. salaried work force, or about 10%, principally as a result of early retirement incentives. Also included in the charge was a write-down of plant and equipment for the company's glass container affiliate in India and certain other asset write-offs, including $27.9 million for software which had been abandoned. Manufacturing capacity consolidations principally involved U.S. glass container facilities and reflect technology-driven improvements in productivity, conversions from some juice and similar products to plastic containers, Company and customer decisions regarding pricing and volume, and the further concentration of production in the most strategically-located facilities. CAPITAL RESOURCES AND LIQUIDITY The Company's total debt at September 30, 2001 was $5.31 billion, compared to $5.85 billion at December 31, 2000 and $5.87 billion at September 30, 2000. During April 2001, certain of the Company's subsidiaries entered into the Secured Credit Agreement (the "Agreement") with a group of banks, which expires on March 31, 2004. The Agreement provides for a $3.0 billion revolving credit facility and a $1.5 billion term loan. Borrowings under the Agreement were used to repay all amounts outstanding under, and terminate, the Company's Second Amended and Restated Credit Agreement. At September 30, 2001, the Company had available credit totaling $4.045 billion under its April 2001 Secured Credit Agreement, of which $621.4 million had not been utilized. At December 31, 2000, the Company had $597.8 million of credit which had not been utilized under the Company's Second Amended and Restated Credit Agreement. Cash provided by operating activities was $271.8 million for the first nine months of 2001 compared to $286.4 million for the first nine months of 2000. On October 1, 2001, the Company completed its acquisition of the Canadian glass container assets of Consumers Packaging Inc. for a purchase price of approximately US$150 million. The transaction was approved by the Ontario Superior Court of Justice as part of a restructuring plan by Consumers Packaging. The purchase price was financed by borrowings under the Agreement. In connection with the purchase of such assets, the Company also agreed to purchase the shares of Consumers U.S., Inc. held by Consumers Packaging for a purchase price of Cdn$5 million. Consumers U.S., Inc. holds approximately 59.5% of the outstanding equity shares of Anchor Glass Container Corporation (on a fully diluted basis). The Company has until December 31, 2002 to close on the acquisition of such shares. The Company previously entered into a non-binding letter of intent to sell the shares of Consumers U.S., Inc. to John Ghaznavi, which letter of intent has been terminated by the Company. The Company anticipates that cash flow from its operations and from utilization of credit available through March 2004 under the Agreement will be sufficient to fund its operating and seasonal working capital needs, debt service and other obligations. During 2002, certain of the Company's subsidiaries expect to refinance all or part of the term loan portion of the Secured Credit Agreement by issuing longer term, fixed rate debt. This will allow the Company to extend the maturity of a portion of its indebtedness, however, will result in higher interest rates. The Company expects its asbestos-related payments for the year ended December 31, 2001, to be between $240 million and $250 million. The Company expects that total payments in 2002 will be moderately lower. Based on the Company's expectations regarding future payments for lawsuits and claims and its expectation of the collection of its insurance coverage for partial reimbursement for such lawsuits and claims, and also based on the Company's expected operating cash flow, the Company believes that the payment of any deferred amounts of previously settled or otherwise determined lawsuits and claims, and the resolution of presently pending and anticipated future lawsuits and claims associated with asbestos, will not have a material adverse effect upon the Company's liquidity on a short-term or long-term basis. The Company's Board of Directors has authorized the management of the Company to repurchase up to 20 million shares of the Company's common stock. During the first quarter of 2001, the Company redeemed the remaining outstanding shares of exchangeble preferred 37 stock that were issued in 1993. The redeemed exchangeable preferred shares were equivalent to 910,697 shares of the Company's common stock. The Company repurchased these shares pursuant to its share repurchase plan for $5.2 million. During the third quarter of 2001, the Company repurchased 3,500 shares. Since July 1999, the Company has repurchased 12,932,897 shares for $248.0 million. The Company may purchase its common stock from time to time on the open market depending on market conditions and other factors. During the term of the Agreement, the Company's total share repurchases are limited to the lesser of two million shares or $25 million. The Company believes that cash flows from its operations and from utilization of credit available under the Agreement will be sufficient to fund any such repurchases in addition to the obligations mentioned in the previous paragraph. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The terms of the Company's former bank credit agreement provided, among other things, a $1.75 billion offshore revolving loan facility which was available to certain of the Company's foreign subsidiaries and denominated in certain foreign currencies. For further information about that facility and related foreign currency loan amounts outstanding, see Note 3 to the financial statements. All outstanding amounts were repaid with borrowings under the April 2001 Secured Credit Agreement, which are denominated in U.S. dollars. As described in Note 11 to the financial statements, amounts borrowed under the new agreement by foreign subsidiaries have been swapped into the subsidiaries' functional currencies. FORWARD LOOKING STATEMENTS This document may contain "forward looking" statements as defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements reflect the Company's best assessment at the time, and thus involve uncertainty and risk. It is possible the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to the following: (1) foreign currency fluctuations relative to the U.S. dollar, (2) change in capital availability or cost, including interest rate fluctuations, (3) the general political, economic and competitive conditions in markets and countries where the Company has operations, including competitive pricing pressures, inflation or deflation, and changes in tax rates, (4) consumer preferences for alternative forms of packaging, (5) fluctuations in raw material and labor costs, (6) availability of raw materials, (7) costs and availability of energy, (8) transportation costs, (9) consolidation among competitors and customers, (10) the ability of the Company to integrate operations of acquired businesses, (11) the performance by customers of their obligations under purchase agreements, and (12) the timing and occurrence of events, including events related to asbestos lawsuits and claims, which are beyond the control of the Company. It is not possible to foresee or identify all such factors. Any forward looking statements in this document are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. Forward looking statements are not a guarantee of future performance and actual results or developments may differ materially from expectations. While the Company continually reviews trends and uncertainties affecting the Company's results of operations and financial condition, the Company does not intend to update any particular forward looking statements contained in this document. 38 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. For further information on legal proceedings, see Note 7 to the Condensed Consolidated Financial Statements, "Contingencies," that is included in Part I of this Report, which is incorporated herein by reference ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Exhibit 4.1 Supplemental Indenture Agreement between Owens-Illinois Group, Inc. and Owens-Brockway Packaging, Inc. and The Bank of New York for the Indenture dated May 20, 1998. Exhibit 4.2 Supplemental Indenture Agreement between Owens-Illinois Group, Inc. and Owens-Brockway Packaging, Inc. and The Bank of New York for the Indenture dated May 15, 1997. Exhibit 4.3 Pledge Agreement between Owens-Illinois Group, Inc. and Owens-Brockway Packaging, Inc. and Bankers Trust Company Exhibit 4.4 Intercreditor Agreement between Bankers Trust Company and the lenders under the Secured Credit Agreement Exhibit 10.1 Owens-Illinois, Inc. Executive Deferred Savings Plan Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends. (b) Reports on Form 8-K: On August 3, 2001, the Registrant filed a Form 8-K which included a press release dated August 3, 2001 announcing that it has entered into an agreement in principle to acquire substantially all of the Canadian glass container assets of Consumers Packaging Inc. 39 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OWENS-ILLINOIS, INC. Date November 14, 2001 By /s/ Edward C. White ------------------- ---------------------------------- Edward C. White Controller (Principal Accounting Officer) 40 INDEX TO EXHIBITS EXHIBITS 4.1 Supplemental Indenture Agreement between Owens-Illinois Group, Inc. and Owens-Brockway Packaging, Inc. and The Bank of New York for the Indenture dated May 20, 1998. 4.2 Supplemental Indenture Agreement between Owens-Illinois Group, Inc. and Owens-Brockway Packaging, Inc. and The Bank of New York for the Indenture dated May 15, 1997. 4.3 Pledge Agreement between Owens-Illinois Group, Inc. and Owens-Brockway Packaging, Inc. and Bankers Trust Company 4.4 Intercreditor Agreement between Bankers Trust Company and the lenders under the Secured Credit Agreement 10.1 Owens-Illinois, Inc. Executive Deferred Savings Plan 12 Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends 41 EX-4.1 3 a2063263zex-4_1.txt EXHIBIT 4.1 EXHIBIT 4.1 ================================================================================ OWENS-ILLINOIS, INC., ISSUER AND OWENS-ILLINOIS GROUP, INC. OWENS-BROCKWAY PACKAGING, INC., THE GUARANTEEING SUBSIDIARIES AND THE BANK OF NEW YORK, TRUSTEE -------------------- SUPPLEMENTAL INDENTURE DATED AS OF JUNE 26, 2001 -------------------- Supplemental to the Indenture dated as of May 20, 1998 with respect to the following series of Securities: 7.15% Senior Notes due 2005 7.35% Senior Notes due 2008 7.50% Senior Debentures due 2010 7.80% Senior Debentures due 2018 ================================================================================ Supplemental Indenture (this "SUPPLEMENTAL INDENTURE"), dated as of June 26, 2001 among Owens-Illinois, Inc. (or its permitted successor), a Delaware corporation (the "COMPANY"), Owens-Illinois Group, Inc. ("GROUP") and Owens-Brockway Packaging, Inc. ("PACKAGING") (each of Group and Packaging, a "GUARANTEEING SUBSIDIARY"), subsidiaries of the Company, and The Bank of New York, as trustee under the indenture referred to below (the "TRUSTEE"). W I T N E S S E T H WHEREAS, the Company has executed and delivered to the Trustee an indenture dated as of May 20, 1998, as amended or supplemented prior to the date hereof (the "INDENTURE"), pursuant to which the Company has issued $350 million principal amount of 7.15% Senior Notes due 2005, $250 million principal amount of 7.35% Senior Notes due 2008, $250 million principal amount of 7.50% Senior Debentures due 2010 and $250 million principal amount of 7.80% Senior Debentures due 2018, each of which are a separate series of Securities under the Indenture; WHEREAS, the Holders of not less than a majority of the principal amount of the outstanding [list series of securities that have consented] (collectively, the "NOTES") have consented to the amendments to the Indenture set forth herein; WHEREAS, (a) each Guaranteeing Subsidiary desires to unconditionally guarantee all of the Company's obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "NOTE GUARANTEE") and (b) the Guaranteeing Subsidiaries desire to pledge and grant security interests in certain collateral to (i) secure on a second priority basis the Company's obligations under the Indenture and the Notes on the terms and conditions set forth herein and (ii) secure on a second priority basis the obligations of each Guaranteeing Subsidiary under the Note Guarantee; and WHEREAS, the amendments effected by this Supplemental Indenture will not become operative unless and until the conditions set forth in Section 7 are satisfied. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, each Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: SECTION 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. SECTION 2. DEFINITIONS. The following definitions are hereby added to Section 1.01 of the Indenture, which, in the event of a conflict with the definition of terms in the Indenture, shall control: "COLLATERAL AGENT" means Bankers Trust Company or any successor acting in the capacity of collateral agent under the Pledge Agreement. "CREDIT AGREEMENT" means the Secured Credit Agreement dated as of April 23, 2001 among certain subsidiaries of the Company, the lenders named therein, the agents for the lenders, the managers for the lenders and Bankers Trust Company, as administrative agent, as such agreement may be amended, amended and restated, supplemented or otherwise modified from time to time, and includes any credit agreement or bank facility that extends the maturity of or refinances or replaces all or any portion of the obligations or commitments under such agreement or any successor agreement. "EQUITY INTERESTS" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, with respect to partnerships, partnership interests and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership (collectively, "Capital Stock"), and all warrants, options or other rights to acquire such Capital Stock. "GUARANTIED OBLIGATIONS" has the meaning given such term in the Credit Agreement or the Subsidiary Guaranty, as applicable. "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement executed and delivered by the Collateral Agent and the other parties thereto dated as of April 23, 2001, in the form of Exhibit A hereto, as such Intercreditor Agreement may hereafter be amended, supplemented or otherwise modified from time to time. -1- "NEW SENIOR DEBT" means Indebtedness of any Subsidiary of the Company issued after the date hereof so long as such Indebtedness is issued in compliance with the terms and provisions of the Credit Agreement and constitutes "New Senior Debt" under the Credit Agreement. "PERMITTED JUNIOR SECURITIES" means Equity Interests or debt securities of the Company or any Guaranteeing Subsidiary, in each case that are subordinated to the Senior Guarantees to substantially the same extent as, or to a greater extent than, the Note Guarantee is subordinated to the Senior Guarantees. "PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered by Group and Packaging to the Collateral Agent dated as of April 23, 2001, in the form of Exhibit B hereto, as such Pledge Agreement may hereafter be amended, supplemented or otherwise modified from time to time. "PLEDGED COLLATERAL" means the Pledged Collateral as defined in the Pledge Agreement. "SENIOR GUARANTEE" means (i) the guarantee by Group of the Guarantied Obligations pursuant to the Credit Agreement, (ii) the guarantee by Packaging of the Guarantied Obligations pursuant to the Subsidiary Guaranty to which it is a party and (iii) if applicable, the guarantee by any Guaranteeing Subsidiary of obligations of the issuer or issuers of any New Senior Debt. "SUBSIDIARY GUARANTY" means the Guaranty executed and delivered by Packaging pursuant to the Credit Agreement. SECTION 3. AGREEMENT TO PROVIDE SECURITY. The Company and the Guaranteeing Subsidiaries hereby agree to provide security for the Notes on the following terms and conditions: SECTION 3.1 PLEDGE AGREEMENT.The due and punctual payment of the principal of and interest, if any, on the Notes when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest (to the extent permitted by law), if any, on the Notes and performance of all other obligations of the Company to the Holders of Notes or the Trustee under the Indenture and the Notes, and the performance of each Guaranteeing Subsidiary under the Note Guarantee, in each case according to the terms hereunder or thereunder, shall be secured as provided in the Pledge Agreement. The Company shall deliver to the Trustee copies of all documents delivered to the Collateral Agent pursuant to the Pledge Agreement, and shall do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Pledge Agreement, to assure and confirm to the Trustee and the Collateral Agent the security interest in the Pledged Collateral contemplated hereby, by the Pledge Agreement or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of the Indenture, the Note Guarantee and of the Notes secured hereby, according to the intent and purposes herein and therein expressed. The Company shall take, or shall cause its Subsidiaries to take, as necessary or upon request of the Trustee, any and all actions reasonably required to cause the Pledge Agreement to create and maintain, as security for the obligations of the Company and the Guaranteeing Subsidiaries under this Supplemental Indenture and the Indenture, a valid and enforceable second priority Lien in and on all the Pledged Collateral, in favor of the Collateral Agent for the benefit of the Holders of Notes, as and to the extent set forth in the Pledge Agreement. SECTION 3.2 RECORDING AND OPINIONS. (a) The Company shall furnish to the Trustee promptly following the execution and delivery of this Supplemental Indenture an Opinion of Counsel either (i) stating that in the opinion of such counsel all action has been taken with respect to the recording, registering and filing of the Indenture, financing statements or other instruments necessary to make effective the Lien intended to be created by the Pledge Agreement, and reciting with respect to the security interests in the Pledged Collateral, the details of such action, or (ii) stating that, in the opinion of such counsel, no such action is necessary to make such Lien effective. (b) The Company shall furnish to the Trustee within 30 days after May 1 of each year, beginning with May 1, 2002, an Opinion of Counsel, dated as of such date, either (i) (A) stating that, in the opinion of such counsel, action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refiling of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of the Pledge Agreement and reciting with respect to the security interests in the Pledged Collateral the details of such action or referring to prior Opinions of Counsel in which such details are given, and (B) stating that, based on relevant laws as in effect on the date of such Opinion of Counsel, all financing statements and continuation statements have been executed and filed that are -2- necessary as of such date and during the succeeding 12 months fully to preserve and protect, to the extent such protection and preservation are possible by filing, the rights of the Holders of Notes and the Collateral Agent and the Trustee hereunder and under the Pledge Agreement with respect to the security interests in the Pledged Collateral, or (ii) stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien and assignment. (c) The Company shall otherwise comply with the provisions of TIAss.314(b). SECTION 3.3 RELEASE OF COLLATERAL. Pledged Collateral may be released from the Lien and security interest created by the Pledge Agreement at any time or from time to time in accordance with the provisions of the Pledge Agreement and the Intercreditor Agreement. The release of any Pledged Collateral from the terms of the Indenture and the Pledge Agreement shall not be deemed to impair the security under the Indenture in contravention of the provisions hereof if and to the extent the Pledged Collateral is released pursuant to the terms of the Pledge Agreement and the Intercreditor Agreement. The Trustee acknowledges and the Holders, by their consent to the amendments effected by this Supplemental Indenture are deemed to acknowledge, that a release of the Pledged Collateral in accordance with the terms of the Pledge Agreement and the Intercreditor Agreement will not be deemed for any purpose to be an impairment of the security under the Indenture. To the extent applicable, the Company shall comply with TIA ss. 313(b), relating to reports, and TIA ss. 314(d), relating to the release of property or securities from the Lien and security interest of the Pledge Agreement and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Pledge Agreement. Any certificate or opinion required by TIA ss. 314(d) may be made by an Officer of the Company except in cases where TIA ss. 314(d) requires that such certificate or opinion be made by an independent Person. SECTION 3.4 AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE PLEDGE AGREEMENT. Subject to the provisions of the Intercreditor Agreement and the Pledge Agreement, the Trustee shall have power to institute and maintain such suits and proceedings to prevent any impairment of the Pledged Collateral by any acts that may be unlawful or in violation of the Pledge Agreement, the Intercreditor Agreement or the Indenture, and such suits and proceedings to preserve or protect its interests and the interests of the Holders of Notes in the Pledged Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders of Notes or of the Trustee). SECTION 3.5 AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE PLEDGE AGREEMENT. The Trustee is authorized to receive any funds for the benefit of the Holders of Notes distributed under the Pledge Agreement, and to make further distributions of such funds to the Holders of Notes according to the provisions of this Supplemental Indenture, the Indenture and the Intercreditor Agreement. SECTION 4. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows: SECTION 4.1 GUARANTEE. (a) Such Guaranteeing Subsidiary jointly and severally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Supplemental Indenture, the Indenture, the Notes or the obligations of the Company thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes (to the extent permitted by law), if any (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Law, and interest that, but for the filing of a proceeding under the Bankruptcy Law with respect to the Company, would have accrued on the Notes, whether or not any such interest is allowed as an enforceable claim against the Company in such proceeding), and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when -3- due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guaranteeing Subsidiaries shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a Guaranteeing Subsidiary. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guaranteeing Subsidiaries, or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guaranteeing Subsidiaries, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) Such Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guaranteeing Subsidiaries, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guaranteeing Subsidiaries for the purpose of this Note Guarantee. (h) Such Guaranteeing Subsidiary shall have the right to seek contribution from any non-paying Guaranteeing Subsidiary so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantee. (i) Each Guaranteeing Subsidiary hereby confirms that it is the intention of such party that the Note Guarantee of such Guaranteeing Subsidiary not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee and the Guaranteeing Subsidiaries hereby irrevocably agree that the obligations of such Guaranteeing Subsidiary will, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy Law or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guaranteeing Subsidiary in respect of the obligations of such other Guaranteeing Subsidiary under this Supplemental Indenture, this Note Guarantee shall be limited to the maximum amount permissible such that the obligations of such Guaranteeing Subsidiary under this Note Guarantee will not constitute a fraudulent transfer or conveyance. SECTION 4.2 EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. SECTION 4.3 GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Subject to Section 4.4(a) below, a Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guaranteeing Subsidiary is the surviving Person) another Person unless the Person formed by or surviving any such consolidation or merger (if other than a Guaranteeing Subsidiary or the Company) unconditionally assumes all the obligations of such Guaranteeing Subsidiary, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Note Guarantee on the terms set forth herein or therein. -4- (b) Subject to Section 4.4(a) below, in case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guaranteeing Subsidiary, such successor Person shall succeed to and be substituted for the Guaranteeing Subsidiary with the same effect as if it had been named herein as a Guaranteeing Subsidiary. Such successor corporation thereupon may cause to be signed any or all of the Note Guarantees which theretofore shall not have been signed by the Guaranteeing Subsidiary and delivered to the Trustee. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. (c) Notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guaranteeing Subsidiary with or into the Company or another Guaranteeing Subsidiary, or shall prevent any sale or conveyance of the property of a Guaranteeing Subsidiary as an entirety or substantially as an entirety to the Company or another Guaranteeing Subsidiary. SECTION 4.4 RELEASES. (a) In the event of a sale or other disposition of all or substantially all of the assets of any Guaranteeing Subsidiary, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guaranteeing Subsidiary, in each case to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, then such Guaranteeing Subsidiary (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guaranteeing Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guaranteeing Subsidiary) will be released and relieved of any obligations under its Note Guarantee. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale or other disposition has occurred, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guaranteeing Subsidiary from its obligations under its Note Guarantee. (b) The Company, in its sole discretion, may release and relieve a Guaranteeing Subsidiary of any obligations under its Note Guarantee in the event such Guaranteeing Subsidiary is no longer a guarantor of any Guarantied Obligations. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such Guaranteeing Subsidiary is no longer a guarantor of any Guarantied Obligations, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guaranteeing Subsidiary from its obligations under its Note Guarantee. (c) Any Guaranteeing Subsidiary not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guaranteeing Subsidiary under the Indenture. SECTION 4.5 SUBORDINATION OF NOTE GUARANTEE. Each Guaranteeing Subsidiary covenants and agrees that the obligations of such Guaranteeing Subsidiary under its Note Guarantee shall be junior and subordinate in right of payment to the prior payment in full in cash of all obligations under the Senior Guarantee of such Guaranteeing Subsidiary. SECTION 4.6 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. Upon any distribution to creditors of a Guaranteeing Subsidiary in a liquidation or dissolution of such Guaranteeing Subsidiary or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guaranteeing Subsidiary or its property, in an assignment for the benefit of creditors or any marshaling of the Guaranteeing Subsidiary's assets and liabilities: (i) holders of the Senior Guarantees shall be entitled to receive payment in full in cash of all obligations due in respect of such Senior Guarantees (including interest after the commencement of any such proceeding at the rate specified in the Indebtedness to which such Senior Guarantee relates whether or not any such interest is allowed as an enforceable claim against the Guaranteeing Subsidiary in such proceeding) before holders of the Note Guarantee shall be entitled to receive any payment with respect to the Note Guarantee (except that Holders may receive (A) Permitted Junior Securities and (B) payments and other distributions made from any defeasance trust created pursuant to Section 8.03 or 8.04 of the Indenture); and -5- (ii) until all obligations with respect to the Senior Guarantees (as provided in clause (i) above) are paid in full in cash, any distribution to which holders of the Note Guarantee would be entitled but for this Section 4 shall be made to holders entitled to the benefit of the Senior Guarantees (except that holders of the Note Guarantee may receive (A) Permitted Junior Securities and (B) payments and other distributions made from any defeasance trust created pursuant to Section 8.03 or 8.04 of the Indenture), as their interests may appear. SECTION 4.7 DEFAULT ON SENIOR GUARANTEES. (a) A Guaranteeing Subsidiary may not make any payment or distribution to the Trustee or any holder in respect of obligations with respect to the Note Guarantee and may not acquire from the Trustee or any Holder any Notes for cash or property (other than (A) Permitted Junior Securities and (B) payments and other distributions made from any defeasance trust created pursuant to Section 8.03 or 8.04 of the Indenture) until all obligations with respect to the Senior Guarantees have been paid in full in cash if: (i) a default in the payment of any obligations with respect to any Senior Guarantee occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Senior Guarantee; or (ii) a default, other than a payment default, with respect to any Senior Guarantee occurs and is continuing that then permits holders of the Senior Guarantee to accelerate the maturity of the Indebtedness to which such Senior Guarantee relates and a Trust Officer of the Trustee receives a notice of the default (a "PAYMENT BLOCKAGE NOTICE") from a Person who may give it pursuant to Section 4.13 hereof. If a Trust Officer of the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (A) at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (B) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to a Trust Officer of the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 180 days. (b) A Guaranteeing Subsidiary may and shall resume payments on and distributions in respect of the Note Guarantee and may acquire Notes upon the earlier of: (i) the date upon which the default is cured or waived, or (ii) in the case of a default referred to in clause (ii) of subclause (a) hereof, 179 days pass after notice is received if the maturity of the Indebtedness to which such Senior Guarantee relates has not been accelerated, if this Section 4 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. SECTION 4.8 WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any holder receives any payment of any obligations with respect to the Note Guarantee at a time when a Trust Officer of the Trustee or such holder, as applicable, has actual knowledge that such payment is prohibited by this Section 4, such payment shall be held by the Trustee or such holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of the Senior Guarantees as their interests may appear or their representative under the indenture or other agreement (if any) pursuant to which the Senior Guarantees may have been issued, as their respective interests may appear, for application to the payment of all obligations with respect to the Senior Guarantees remaining unpaid to the extent necessary to pay such obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of the Senior Guarantees. With respect to the holders of the Senior Guarantees, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Section 4 and no implied covenants or obligations with respect to the holders of the Senior Guarantees shall be read into this Supplemental Indenture or the Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of the Senior Guarantees, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of holders of the Note Guarantee or any Guaranteeing Subsidiary or any other Person money or assets to -6- which any holders of Senior Guarantees shall be entitled by virtue of this Section 4, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 4.9 SUBROGATION. After all obligations with respect to the Senior Guarantees are paid in full and all Guarantied Obligations are satisfied or terminated and until the Notes are paid in full, holders of the Note Guarantee shall be subrogated to the rights of holders of Senior Guarantees to receive distributions applicable to the Senior Guarantees to the extent that distributions otherwise payable to the holders of the Note Guarantee have been applied to the payment of the obligations with respect to the Senior Guarantees. A distribution made under this Section 4 to holders of Senior Guarantees that otherwise would have been made to holders of the Note Guarantee is not, as between a Guaranteeing Subsidiary and Holders, a payment by such Guaranteeing Subsidiary on the Note Guarantee. SECTION 4.10 RELATIVE RIGHTS. This Section 4 defines the relative rights of holders of the Note Guarantee and holders of Senior Guarantees. Nothing in this Supplemental Indenture or the Indenture shall: (i) impair, as between the Company or any Guaranteeing Subsidiary and holders of the Note Guarantee, the obligation of the Company and the Guaranteeing Subsidiaries, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (ii) affect the relative rights of holders of the Note Guarantee and creditors of the Guaranteeing Subsidiaries other than their rights in relation to holders of Senior Guarantees; or (iii) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Guarantees to receive distributions and payments otherwise payable to holders of the Note Guarantee. SECTION 4.11 SUBORDINATION MAY NOT BE IMPAIRED BY ANY GUARANTEEING SUBSIDIARY. No right of any holder of a Senior Guarantee to enforce the subordination of the obligations evidenced by the Note Guarantee shall be impaired by any act or failure to act by any Guaranteeing Subsidiary or any holder of the Note Guarantee or by the failure of any Guaranteeing Subsidiary or any holder of the Note Guarantee to comply with this Supplemental Indenture or the Indenture. SECTION 4.12 DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of the Senior Guarantees, the distribution may be made and the notice given to their representative. Upon any payment or distribution of assets of any Guaranteeing Subsidiary referred to in this Section 4, the Trustee and the holders of the Note Guarantee shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the holders of the Note Guarantee for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Guarantees and other Indebtedness of the Guaranteeing Subsidiaries, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 4. SECTION 4.13 RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Supplemental Indenture or any other provision of the Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments in accordance with the Indenture and the Note Guarantee, unless a Trust Officer of the Trustee shall have received at its Corporate Trust Office at least five business days prior to the date of such payment written notice of facts that would cause the payment of any obligations with respect to the Note Guarantee to violate this Section 4. Only a Guaranteeing Subsidiary or a Representative may give the notice. For purposes of this Section 4.13, "Representative" means, until the Credit Agreement has been terminated, the administrative agent under the Credit Agreement, and thereafter, any authorized representative of the holders of the Senior Guarantees, so long as such representative has provided proof of its status as an authorized representative to the Trustee prior to giving any notice pursuant to this Section 4.13. Nothing in this Section 4 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 of the Indenture. The Trustee in its individual or any other capacity may hold Senior Guarantees with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. -7- SECTION 4.14 NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Securities and Exchange Commission that such a waiver is against public policy. SECTION 5. DEFAULTS AND REMEDIES. SECTION 5.1 ADDITIONAL EVENT OF DEFAULT. In addition to the Events of Default set forth in Section 6.01 of the Indenture, the Notes shall include the following additional Event of Default: "(7) Group or Packaging fails to comply in any material respect with any of its agreements contained in the Indenture, or the loss of the perfection or priority of the Liens securing the Notes or the Note Guarantee pursuant to the Pledge Agreement, so long as the Notes are secured in accordance with the terms thereof, and in each case the Default continues for the period and after the notice specified in the final paragraph of this Section 6.01." SECTION 5.2 OTHER PROVISIONS RESTATED. The following provisions shall be amended and restated with respect to the Notes in order to provide for rights, directions and remedies as they relate to the Pledge Agreement and the Intercreditor Agreement: "Section 6.03 Other Remedies. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities of that series or to enforce the performance of any provision of the Securities of that series, this Indenture, the Pledge Agreement, the Intercreditor Agreement or any Note Guarantee. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law." "Section 6.06 Limitation on Suits. A Holder of Securities of any series may not pursue a remedy with respect to this Indenture, the Securities, the Pledge Agreement or any Note Guarantee unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default with respect to that series; (2) the Holders of at least 50% in principal amount of the then outstanding Securities of that series make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the then outstanding Securities of that series do not give the Trustee a direction inconsistent with the request. No Holder of any series of Securities may use this Indenture to prejudice the rights of another Holder of Securities of that series or to obtain a preference or priority over another Holder of Securities of that series." "Section 6.10 Priorities. If the Trustee collects any money with respect to Securities of any series pursuant to this Article (including without limitation any amounts received from the distribution of payments pursuant to -8- the Intercreditor Agreement, the Pledge Agreement or any Note Guarantee), it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Securityholders for amounts due and unpaid on the Securities of such series for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities of such series for principal and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct; PROVIDED, however, that in the case of amounts received from the distribution of payments pursuant to the Intercreditor Agreement or any other proceeds of Pledged Collateral securing any series of Securities, such amounts shall not be distributed to the Company but shall rather be held by the Trustee, in trust, for subsequent application in accordance with the Securities of such series and this Indenture to the payment of principal of, premium, if any, and interest on the Securities upon the earlier to occur of (i) any scheduled or mandatory payment of principal, optional redemption or payment of accrued interest on the Securities of such series, in any such case as directed in writing by the Company, and (ii) the acceleration of the maturity of the Securities of that series pursuant to Section 6.02 (including an acceleration by reason of an Event of Default specified in Section 6.01 (4) or (5)). Until so applied, such payments shall be held in a separate account, in trust, by the Trustee or invested by the Trustee at the written direction of the Company. At such time as no Securities of any series remain outstanding, any excess money held by the Trustee shall be paid to the Company. The Trustee may fix a record date and payment date for any payment to Holders of Securities of any series pursuant to this Section. The Trustee shall notify the Company in writing reasonably in advance of any such record date and payment date." SECTION 6. PLEDGE AND INTERCREDITOR AGREEMENTS. The Trustee hereby acknowledges and accepts the appointment of the Collateral Agent under the Pledge Agreement and shall, concurrently with the execution hereof, deliver to the Collateral Agent an acknowledgement of the Intercreditor Agreement. In addition, the Trustee shall execute such further documents and instruments as may be necessary to create in favor of the Collateral Agent a valid and enforceable second priority Lien on the Pledged Collateral. SECTION 7. EFFECTIVENESS. The amendments effected by this Supplemental Indenture shall take effect on the date that each of the following conditions shall have been satisfied or waived: (a) each of the parties hereto shall have executed and delivered this Supplemental Indenture; and (b) the Company has received (i) written consent to these amendments from the holders of at least a majority in principal amount of each series of Securities issued under the Indenture and (ii) written consent to substantially similar amendments to the Indenture dated as of May 15, 1997 (the "Other Indenture") from the holders of at least a majority in principal amount of the following series of securities issued under the Other Indenture: $300 million principal amount of 7.85% Senior Notes due 2004 and $300 million principal amount of 8.10% Senior Notes due 2007. SECTION 8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. -9- SECTION 10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. SECTION 11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Company. The Company's obligations with respect to compensation and indemnity of the Trustee shall extend to the administration of and performance of its powers and duties under the Pledge Agreement and the Intercreditor Agreement. SECTION 12. INDENTURE REMAINS IN FULL FORCE AND EFFECT. Except as expressly set forth herein, the terms of the Indenture shall continue in full force and effect in accordance with the provisions thereof. As used herein, the terms "Indenture," "herein," "hereunder," and words of similar import, shall, unless the context otherwise requires, refer to the Indenture, as supplemented hereby. -10- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed of the date first above written. Dated: June 26, 2001 Owens-Illinois Group, Inc. By: /s/ David G. Van Hooser --------------------------------------- Name: David G. Van Hooser Title: Senior Vice President and Chief Financial Officer Owens-Brockway Packaging, Inc. By: /s/ David G. Van Hooser --------------------------------------- Name: David G. Van Hooser Title: Senior Vice President and Chief Financial Officer Owens-Illinois, Inc. By: /s/ David G. Van Hooser --------------------------------------- Name: David G. Van Hooser Title: Senior Vice President and Chief Financial Officer The Bank of New York, as Trustee By: /s/ Terence Rawlins --------------------------------------- Authorized Signatory -11- EX-4.2 4 a2063263zex-4_2.txt EXHIBIT 4.2 EXHIBIT 4.2 ================================================================================ OWENS-ILLINOIS, INC., ISSUER AND OWENS-ILLINOIS GROUP, INC. OWENS-BROCKWAY PACKAGING, INC., THE GUARANTEEING SUBSIDIARIES AND THE BANK OF NEW YORK, TRUSTEE -------------------- SUPPLEMENTAL INDENTURE DATED AS OF JUNE 26, 2001 -------------------- Supplemental to the Indenture dated as of May 15, 1997 with respect to the following series of Securities: 7.85% Senior Notes due 2004 and 8.10% Senior Notes due 2007 ================================================================================ Supplemental Indenture (this "SUPPLEMENTAL INDENTURE"), dated as of June 26, 2001 among Owens-Illinois, Inc. (or its permitted successor), a Delaware corporation (the "COMPANY"), Owens-Illinois Group, Inc. ("GROUP") and Owens-Brockway Packaging, Inc. ("PACKAGING") (each of Group and Packaging, a "GUARANTEEING SUBSIDIARY"), subsidiaries of the Company, and The Bank of New York, as trustee under the indenture referred to below (the "TRUSTEE"). W I T N E S S E T H WHEREAS, the Company has executed and delivered to the Trustee an indenture dated as of May 15, 1997, as amended or supplemented prior to the date hereof (the "INDENTURE"), pursuant to which the Company has issued $300 million principal amount of 7.85% Senior Notes due 2004 and $300 million principal amount of 8.10% Senior Notes due 2007, each of which are a separate series of Securities under the Indenture; WHEREAS, the Holders of not less than a majority of the principal amount of the outstanding [list series of securities that have consented] (collectively, the "NOTES") have consented to the amendments to the Indenture set forth herein; WHEREAS, (a) each Guaranteeing Subsidiary desires to unconditionally guarantee all of the Company's obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "NOTE GUARANTEE") and (b) the Guaranteeing Subsidiaries desire to pledge and grant security interests in certain collateral to (i) secure on a second priority basis the Company's obligations under the Indenture and the Notes on the terms and conditions set forth herein and (ii) secure on a second priority basis the obligations of each Guaranteeing Subsidiary under the Note Guarantee; and WHEREAS, the amendments effected by this Supplemental Indenture will not become operative unless and until the conditions set forth in Section 7 are satisfied. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, each Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: SECTION 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. SECTION 2. DEFINITIONS. The following definitions are hereby added to Section 1.01 of the Indenture, which, in the event of a conflict with the definition of terms in the Indenture, shall control: "COLLATERAL AGENT" means Bankers Trust Company or any successor acting in the capacity of collateral agent under the Pledge Agreement. "CREDIT AGREEMENT" means the Secured Credit Agreement dated as of April 23, 2001 among certain subsidiaries of the Company, the lenders named therein, the agents for the lenders, the managers for the lenders and Bankers Trust Company, as administrative agent, as such agreement may be amended, amended and restated, supplemented or otherwise modified from time to time, and includes any credit agreement or bank facility that extends the maturity of or refinances or replaces all or any portion of the obligations or commitments under such agreement or any successor agreement. "EQUITY INTERESTS" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, with respect to partnerships, partnership interests and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership (collectively, "Capital Stock"), and all warrants, options or other rights to acquire such Capital Stock. "GUARANTIED OBLIGATIONS" has the meaning given such term in the Credit Agreement or the Subsidiary Guaranty, as applicable. "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement executed and delivered by the Collateral Agent and the other parties thereto dated as of April 23, 2001, in the form of Exhibit A hereto, as such Intercreditor Agreement may hereafter be amended, supplemented or otherwise modified from time to time. "NEW SENIOR DEBT" means Indebtedness of any Subsidiary of the Company issued after the date hereof so long as such Indebtedness is issued in compliance with the terms and provisions of the Credit Agreement and constitutes "New Senior Debt" under the Credit Agreement. -1- "PERMITTED JUNIOR SECURITIES" means Equity Interests or debt securities of the Company or any Guaranteeing Subsidiary, in each case that are subordinated to the Senior Guarantees to substantially the same extent as, or to a greater extent than, the Note Guarantee is subordinated to the Senior Guarantees. "PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered by Group and Packaging to the Collateral Agent dated as of April 23, 2001, in the form of Exhibit B hereto, as such Pledge Agreement may hereafter be amended, supplemented or otherwise modified from time to time. "PLEDGED COLLATERAL" means the Pledged Collateral as defined in the Pledge Agreement. "SENIOR GUARANTEE" means (i) the guarantee by Group of the Guarantied Obligations pursuant to the Credit Agreement, (ii) the guarantee by Packaging of the Guarantied Obligations pursuant to the Subsidiary Guaranty to which it is a party and (iii) if applicable, the guarantee by any Guaranteeing Subsidiary of obligations of the issuer or issuers of any New Senior Debt. "SUBSIDIARY GUARANTY" means the Guaranty executed and delivered by Packaging pursuant to the Credit Agreement. SECTION 3. AGREEMENT TO PROVIDE SECURITY. The Company and the Guaranteeing Subsidiaries hereby agree to provide security for the Notes on the following terms and conditions: SECTION 3.1 PLEDGE AGREEMENT.The due and punctual payment of the principal of and interest, if any, on the Notes when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest (to the extent permitted by law), if any, on the Notes and performance of all other obligations of the Company to the Holders of Notes or the Trustee under the Indenture and the Notes, and the performance of each Guaranteeing Subsidiary under the Note Guarantee, in each case according to the terms hereunder or thereunder, shall be secured as provided in the Pledge Agreement. The Company shall deliver to the Trustee copies of all documents delivered to the Collateral Agent pursuant to the Pledge Agreement, and shall do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Pledge Agreement, to assure and confirm to the Trustee and the Collateral Agent the security interest in the Pledged Collateral contemplated hereby, by the Pledge Agreement or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of the Indenture, the Note Guarantee and of the Notes secured hereby, according to the intent and purposes herein and therein expressed. The Company shall take, or shall cause its Subsidiaries to take, as necessary or upon request of the Trustee, any and all actions reasonably required to cause the Pledge Agreement to create and maintain, as security for the obligations of the Company and the Guaranteeing Subsidiaries under this Supplemental Indenture and the Indenture, a valid and enforceable second priority Lien in and on all the Pledged Collateral, in favor of the Collateral Agent for the benefit of the Holders of Notes, as and to the extent set forth in the Pledge Agreement. SECTION 3.2 RECORDING AND OPINIONS. (a) The Company shall furnish to the Trustee promptly following the execution and delivery of this Supplemental Indenture an Opinion of Counsel either (i) stating that in the opinion of such counsel all action has been taken with respect to the recording, registering and filing of the Indenture, financing statements or other instruments necessary to make effective the Lien intended to be created by the Pledge Agreement, and reciting with respect to the security interests in the Pledged Collateral, the details of such action, or (ii) stating that, in the opinion of such counsel, no such action is necessary to make such Lien effective. (b) The Company shall furnish to the Trustee within 30 days after May 1 of each year, beginning with May 1, 2002, an Opinion of Counsel, dated as of such date, either (i) (A) stating that, in the opinion of such counsel, action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refiling of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien of the Pledge Agreement and reciting with respect to the security interests in the Pledged Collateral the details of such action or referring to prior Opinions of Counsel in which such details are given, and (B) stating that, based on relevant laws as in effect on the date of such Opinion of Counsel, all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding 12 months fully to preserve and protect, to the extent such protection and preservation are possible by filing, the rights of the Holders of Notes and the Collateral Agent and the -2- Trustee hereunder and under the Pledge Agreement with respect to the security interests in the Pledged Collateral, or (ii) stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien and assignment. (c) The Company shall otherwise comply with the provisions of TIAss.314(b). SECTION 3.3 RELEASE OF COLLATERAL. Pledged Collateral may be released from the Lien and security interest created by the Pledge Agreement at any time or from time to time in accordance with the provisions of the Pledge Agreement and the Intercreditor Agreement. The release of any Pledged Collateral from the terms of the Indenture and the Pledge Agreement shall not be deemed to impair the security under the Indenture in contravention of the provisions hereof if and to the extent the Pledged Collateral is released pursuant to the terms of the Pledge Agreement and the Intercreditor Agreement. The Trustee acknowledges and the Holders, by their consent to the amendments effected by this Supplemental Indenture are deemed to acknowledge, that a release of the Pledged Collateral in accordance with the terms of the Pledge Agreement and the Intercreditor Agreement will not be deemed for any purpose to be an impairment of the security under the Indenture. To the extent applicable, the Company shall comply with TIA ss. 313(b), relating to reports, and TIA ss. 314(d), relating to the release of property or securities from the Lien and security interest of the Pledge Agreement and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Pledge Agreement. Any certificate or opinion required by TIA ss. 314(d) may be made by an Officer of the Company except in cases where TIA ss. 314(d) requires that such certificate or opinion be made by an independent Person. SECTION 3.4 AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE PLEDGE AGREEMENT. Subject to the provisions of the Intercreditor Agreement and the Pledge Agreement, the Trustee shall have power to institute and maintain such suits and proceedings to prevent any impairment of the Pledged Collateral by any acts that may be unlawful or in violation of the Pledge Agreement, the Intercreditor Agreement or the Indenture, and such suits and proceedings to preserve or protect its interests and the interests of the Holders of Notes in the Pledged Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders of Notes or of the Trustee). SECTION 3.5 AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE PLEDGE AGREEMENT. The Trustee is authorized to receive any funds for the benefit of the Holders of Notes distributed under the Pledge Agreement, and to make further distributions of such funds to the Holders of Notes according to the provisions of this Supplemental Indenture, the Indenture and the Intercreditor Agreement. SECTION 4. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows: SECTION 4.1 GUARANTEE. (a) Such Guaranteeing Subsidiary jointly and severally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Supplemental Indenture, the Indenture, the Notes or the obligations of the Company thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes (to the extent permitted by law), if any (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Law, and interest that, but for the filing of a proceeding under the Bankruptcy Law with respect to the Company, would have accrued on the Notes, whether or not any such interest is allowed as an enforceable claim against the Company in such proceeding), and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guaranteeing Subsidiaries shall be jointly and severally obligated to pay the same immediately. -3- (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a Guaranteeing Subsidiary. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guaranteeing Subsidiaries, or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guaranteeing Subsidiaries, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) Such Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guaranteeing Subsidiaries, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guaranteeing Subsidiaries for the purpose of this Note Guarantee. (h) Such Guaranteeing Subsidiary shall have the right to seek contribution from any non-paying Guaranteeing Subsidiary so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantee. (i) Each Guaranteeing Subsidiary hereby confirms that it is the intention of such party that the Note Guarantee of such Guaranteeing Subsidiary not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee and the Guaranteeing Subsidiaries hereby irrevocably agree that the obligations of such Guaranteeing Subsidiary will, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy Law or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guaranteeing Subsidiary in respect of the obligations of such other Guaranteeing Subsidiary under this Supplemental Indenture, this Note Guarantee shall be limited to the maximum amount permissible such that the obligations of such Guaranteeing Subsidiary under this Note Guarantee will not constitute a fraudulent transfer or conveyance. SECTION 4.2 EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. SECTION 4.3 GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Subject to Section 4.4(a) below, a Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guaranteeing Subsidiary is the surviving Person) another Person unless the Person formed by or surviving any such consolidation or merger (if other than a Guaranteeing Subsidiary or the Company) unconditionally assumes all the obligations of such Guaranteeing Subsidiary, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Note Guarantee on the terms set forth herein or therein. (b) Subject to Section 4.4(a) below, in case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered -4- to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guaranteeing Subsidiary, such successor Person shall succeed to and be substituted for the Guaranteeing Subsidiary with the same effect as if it had been named herein as a Guaranteeing Subsidiary. Such successor corporation thereupon may cause to be signed any or all of the Note Guarantees which theretofore shall not have been signed by the Guaranteeing Subsidiary and delivered to the Trustee. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. (c) Notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guaranteeing Subsidiary with or into the Company or another Guaranteeing Subsidiary, or shall prevent any sale or conveyance of the property of a Guaranteeing Subsidiary as an entirety or substantially as an entirety to the Company or another Guaranteeing Subsidiary. SECTION 4.4 RELEASES. (a) In the event of a sale or other disposition of all or substantially all of the assets of any Guaranteeing Subsidiary, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guaranteeing Subsidiary, in each case to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of the Company, then such Guaranteeing Subsidiary (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guaranteeing Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guaranteeing Subsidiary) will be released and relieved of any obligations under its Note Guarantee. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale or other disposition has occurred, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guaranteeing Subsidiary from its obligations under its Note Guarantee. (b) The Company, in its sole discretion, may release and relieve a Guaranteeing Subsidiary of any obligations under its Note Guarantee in the event such Guaranteeing Subsidiary is no longer a guarantor of any Guarantied Obligations. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such Guaranteeing Subsidiary is no longer a guarantor of any Guarantied Obligations, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guaranteeing Subsidiary from its obligations under its Note Guarantee. (c) Any Guaranteeing Subsidiary not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guaranteeing Subsidiary under the Indenture. SECTION 4.5 SUBORDINATION OF NOTE GUARANTEE. Each Guaranteeing Subsidiary covenants and agrees that the obligations of such Guaranteeing Subsidiary under its Note Guarantee shall be junior and subordinate in right of payment to the prior payment in full in cash of all obligations under the Senior Guarantee of such Guaranteeing Subsidiary. SECTION 4.6 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. Upon any distribution to creditors of a Guaranteeing Subsidiary in a liquidation or dissolution of such Guaranteeing Subsidiary or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guaranteeing Subsidiary or its property, in an assignment for the benefit of creditors or any marshaling of the Guaranteeing Subsidiary's assets and liabilities: (i) holders of the Senior Guarantees shall be entitled to receive payment in full in cash of all obligations due in respect of such Senior Guarantees (including interest after the commencement of any such proceeding at the rate specified in the Indebtedness to which such Senior Guarantee relates whether or not any such interest is allowed as an enforceable claim against the Guaranteeing Subsidiary in such proceeding) before holders of the Note Guarantee shall be entitled to receive any payment with respect to the Note Guarantee (except that Holders may receive (A) Permitted Junior Securities and (B) payments and other distributions made from any defeasance trust created pursuant to Section 8.03 or 8.04 of the Indenture); and (ii) until all obligations with respect to the Senior Guarantees (as provided in clause (i) above) are paid in full in cash, any distribution to which holders of the Note Guarantee would be -5- entitled but for this Section 4 shall be made to holders entitled to the benefit of the Senior Guarantees (except that holders of the Note Guarantee may receive (A) Permitted Junior Securities and (B) payments and other distributions made from any defeasance trust created pursuant to Section 8.03 or 8.04 of the Indenture), as their interests may appear. SECTION 4.7 DEFAULT ON SENIOR GUARANTEES. (a) A Guaranteeing Subsidiary may not make any payment or distribution to the Trustee or any holder in respect of obligations with respect to the Note Guarantee and may not acquire from the Trustee or any Holder any Notes for cash or property (other than (A) Permitted Junior Securities and (B) payments and other distributions made from any defeasance trust created pursuant to Section 8.03 or 8.04 of the Indenture) until all obligations with respect to the Senior Guarantees have been paid in full in cash if: (i) a default in the payment of any obligations with respect to any Senior Guarantee occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Senior Guarantee; or (ii) a default, other than a payment default, with respect to any Senior Guarantee occurs and is continuing that then permits holders of the Senior Guarantee to accelerate the maturity of the Indebtedness to which such Senior Guarantee relates and a Trust Officer of the Trustee receives a notice of the default (a "PAYMENT BLOCKAGE NOTICE") from a Person who may give it pursuant to Section 4.13 hereof. If a Trust Officer of the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (A) at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (B) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to a Trust Officer of the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 180 days. (b) A Guaranteeing Subsidiary may and shall resume payments on and distributions in respect of the Note Guarantee and may acquire Notes upon the earlier of: (i) the date upon which the default is cured or waived, or (ii) in the case of a default referred to in clause (ii) of subclause (a) hereof, 179 days pass after notice is received if the maturity of the Indebtedness to which such Senior Guarantee relates has not been accelerated, if this Section 4 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. SECTION 4.8 WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any holder receives any payment of any obligations with respect to the Note Guarantee at a time when a Trust Officer of the Trustee or such holder, as applicable, has actual knowledge that such payment is prohibited by this Section 4, such payment shall be held by the Trustee or such holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of the Senior Guarantees as their interests may appear or their representative under the indenture or other agreement (if any) pursuant to which the Senior Guarantees may have been issued, as their respective interests may appear, for application to the payment of all obligations with respect to the Senior Guarantees remaining unpaid to the extent necessary to pay such obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of the Senior Guarantees. With respect to the holders of the Senior Guarantees, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Section 4 and no implied covenants or obligations with respect to the holders of the Senior Guarantees shall be read into this Supplemental Indenture or the Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of the Senior Guarantees, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of holders of the Note Guarantee or any Guaranteeing Subsidiary or any other Person money or assets to which any holders of Senior Guarantees shall be entitled by virtue of this Section 4, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. -6- SECTION 4.9 SUBROGATION. After all obligations with respect to the Senior Guarantees are paid in full and all Guarantied Obligations are satisfied or terminated and until the Notes are paid in full, holders of the Note Guarantee shall be subrogated to the rights of holders of Senior Guarantees to receive distributions applicable to the Senior Guarantees to the extent that distributions otherwise payable to the holders of the Note Guarantee have been applied to the payment of the obligations with respect to the Senior Guarantees. A distribution made under this Section 4 to holders of Senior Guarantees that otherwise would have been made to holders of the Note Guarantee is not, as between a Guaranteeing Subsidiary and Holders, a payment by such Guaranteeing Subsidiary on the Note Guarantee. SECTION 4.10 RELATIVE RIGHTS. This Section 4 defines the relative rights of holders of the Note Guarantee and holders of Senior Guarantees. Nothing in this Supplemental Indenture or the Indenture shall: (i) impair, as between the Company or any Guaranteeing Subsidiary and holders of the Note Guarantee, the obligation of the Company and the Guaranteeing Subsidiaries, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (ii) affect the relative rights of holders of the Note Guarantee and creditors of the Guaranteeing Subsidiaries other than their rights in relation to holders of Senior Guarantees; or (iii) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Guarantees to receive distributions and payments otherwise payable to holders of the Note Guarantee. SECTION 4.11 SUBORDINATION MAY NOT BE IMPAIRED BY ANY GUARANTEEING SUBSIDIARY. No right of any holder of a Senior Guarantee to enforce the subordination of the obligations evidenced by the Note Guarantee shall be impaired by any act or failure to act by any Guaranteeing Subsidiary or any holder of the Note Guarantee or by the failure of any Guaranteeing Subsidiary or any holder of the Note Guarantee to comply with this Supplemental Indenture or the Indenture. SECTION 4.12 DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of the Senior Guarantees, the distribution may be made and the notice given to their representative. Upon any payment or distribution of assets of any Guaranteeing Subsidiary referred to in this Section 4, the Trustee and the holders of the Note Guarantee shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the holders of the Note Guarantee for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Guarantees and other Indebtedness of the Guaranteeing Subsidiaries, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 4. SECTION 4.13 RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Supplemental Indenture or any other provision of the Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments in accordance with the Indenture and the Note Guarantee, unless a Trust Officer of the Trustee shall have received at its Corporate Trust Office at least five business days prior to the date of such payment written notice of facts that would cause the payment of any obligations with respect to the Note Guarantee to violate this Section 4. Only a Guaranteeing Subsidiary or a Representative may give the notice. For purposes of this Section 4.13, "Representative" means, until the Credit Agreement has been terminated, the administrative agent under the Credit Agreement, and thereafter, any authorized representative of the holders of the Senior Guarantees, so long as such representative has provided proof of its status as an authorized representative to the Trustee prior to giving any notice pursuant to this Section 4.13. Nothing in this Section 4 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 of the Indenture. The Trustee in its individual or any other capacity may hold Senior Guarantees with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 4.14 NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Indenture or this -7- Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Securities and Exchange Commission that such a waiver is against public policy. SECTION 5. DEFAULTS AND REMEDIES. SECTION 5.1 ADDITIONAL EVENT OF DEFAULT. In addition to the Events of Default set forth in Section 6.01 of the Indenture, the Notes shall include the following additional Event of Default: "(7) Group or Packaging fails to comply in any material respect with any of its agreements contained in the Indenture, or the loss of the perfection or priority of the Liens securing the Notes or the Note Guarantee pursuant to the Pledge Agreement, so long as the Notes are secured in accordance with the terms thereof, and in each case the Default continues for the period and after the notice specified in the final paragraph of this Section 6.01." SECTION 5.2 OTHER PROVISIONS RESTATED. The following provisions shall be amended and restated with respect to the Notes in order to provide for rights, directions and remedies as they relate to the Pledge Agreement and the Intercreditor Agreement: "Section 6.03 Other Remedies. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities of that series or to enforce the performance of any provision of the Securities of that series, this Indenture, the Pledge Agreement, the Intercreditor Agreement or any Note Guarantee. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law." "Section 6.06 Limitation on Suits. A Holder of Securities of any series may not pursue a remedy with respect to this Indenture, the Securities, the Pledge Agreement or any Note Guarantee unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default with respect to that series; (2) the Holders of at least 50% in principal amount of the then outstanding Securities of that series make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the then outstanding Securities of that series do not give the Trustee a direction inconsistent with the request. No Holder of any series of Securities may use this Indenture to prejudice the rights of another Holder of Securities of that series or to obtain a preference or priority over another Holder of Securities of that series." "Section 6.10 Priorities. If the Trustee collects any money with respect to Securities of any series pursuant to this Article (including without limitation any amounts received from the distribution of payments pursuant to the Intercreditor Agreement, the Pledge Agreement or any Note Guarantee), it shall pay out the money in the following order: -8- First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Securityholders for amounts due and unpaid on the Securities of such series for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities of such series for principal and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct; PROVIDED, however, that in the case of amounts received from the distribution of payments pursuant to the Intercreditor Agreement or any other proceeds of Pledged Collateral securing any series of Securities, such amounts shall not be distributed to the Company but shall rather be held by the Trustee, in trust, for subsequent application in accordance with the Securities of such series and this Indenture to the payment of principal of, premium, if any, and interest on the Securities upon the earlier to occur of (i) any scheduled or mandatory payment of principal, optional redemption or payment of accrued interest on the Securities of such series, in any such case as directed in writing by the Company, and (ii) the acceleration of the maturity of the Securities of that series pursuant to Section 6.02 (including an acceleration by reason of an Event of Default specified in Section 6.01 (4) or (5)). Until so applied, such payments shall be held in a separate account, in trust, by the Trustee or invested by the Trustee at the written direction of the Company. At such time as no Securities of any series remain outstanding, any excess money held by the Trustee shall be paid to the Company. The Trustee may fix a record date and payment date for any payment to Holders of Securities of any series pursuant to this Section. The Trustee shall notify the Company in writing reasonably in advance of any such record date and payment date." SECTION 6. PLEDGE AND INTERCREDITOR AGREEMENTS. The Trustee hereby acknowledges and accepts the appointment of the Collateral Agent under the Pledge Agreement and shall, concurrently with the execution hereof, deliver to the Collateral Agent an acknowledgement of the Intercreditor Agreement. In addition, the Trustee shall execute such further documents and instruments as may be necessary to create in favor of the Collateral Agent a valid and enforceable second priority Lien on the Pledged Collateral. SECTION 7. EFFECTIVENESS. The amendments effected by this Supplemental Indenture shall take effect on the date that each of the following conditions shall have been satisfied or waived: (a) each of the parties hereto shall have executed and delivered this Supplemental Indenture; and (b) the Company has received (i) written consent to these amendments from the holders of at least a majority in principal amount of each series of Securities issued under the Indenture and (ii) written consent to substantially similar amendments to the Indenture dated May 20, 1998 (the "Other Indenture") from the holders of at least a majority in principal amount of the following series of securities issued under the Other Indenture: $350 million principal amount of 7.15% Senior Notes due 2005, $250 million principal amount of 7.35% Senior Notes due 2008, $250 million principal amount of 7.50% Senior Debentures due 2010 and $250 million of 7.80% Senior Debentures due 2018. SECTION 8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. -9- SECTION 11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries and the Company. The Company's obligations with respect to compensation and indemnity of the Trustee shall extend to the administration of and performance of its powers and duties under the Pledge Agreement and the Intercreditor Agreement. SECTION 12. INDENTURE REMAINS IN FULL FORCE AND EFFECT. Except as expressly set forth herein, the terms of the Indenture shall continue in full force and effect in accordance with the provisions thereof. As used herein, the terms "Indenture," "herein," "hereunder," and words of similar import, shall, unless the context otherwise requires, refer to the Indenture, as supplemented hereby. -10- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed of the date first above written. Dated: June 26, 2001 Owens-Illinois Group, Inc. By: /s/ David G. Van Hooser --------------------------------------- Name: David G. Van Hooser Title: Senior Vice President and Chief Financial Officer Owens-Brockway Packaging, Inc. By: /s/ David G. Van Hooser --------------------------------------- Name: David G. Van Hooser Title: Senior Vice President and Chief Financial Officer Owens-Illinois, Inc. By: /s/ David G. Van Hooser --------------------------------------- Name: David G. Van Hooser Title: Senior Vice President and Chief Financial Officer The Bank of New York, as Trustee By: /s/ Terence Rawlins --------------------------------------- Authorized Signatory -11- EX-4.3 5 a2063263zex-4_3.txt EXHIBIT 4.3 EXHIBIT 4.3 PLEDGE AGREEMENT This PLEDGE AGREEMENT (as amended, amended and restated or otherwise modified from time to time, herein called this "AGREEMENT") is dated as of April 23, 2001 between OWENS-ILLINOIS GROUP, INC., a Delaware corporation ("COMPANY"), and OWENS BROCKWAY PACKAGING INC., a Delaware corporation ("PACKAGING") (each a "PLEDGOR" and collectively, the "PLEDGORS"), and BANKERS TRUST COMPANY ("BANKERS"), as Collateral Agent for and representative of (in such capacity herein called the "COLLATERAL AGENT") the Lenders (as hereinafter defined), the Interest Rate Exchangers (as hereinafter defined), the Currency Exchangers (as hereinafter defined), and, subject to the satisfaction of the Supplemental Indenture Condition (as hereinafter defined), the trustees under the Existing Senior Note Indentures (as hereinafter defined) (each, including any successor, an "EXISTING SENIOR NOTE TRUSTEE" and collectively, the "EXISTING SENIOR NOTE TRUSTEES"), the Other Permitted Credit Exposure Holders (as hereinafter defined), the New Senior Debt Representatives (as hereinafter defined), the Refinancing Senior Debt Representatives (as hereinafter defined) and the New Junior Debt Representatives (as hereinafter defined). Initially capitalized terms used herein without definition are defined in the Credit Agreement (as hereinafter defined). R E C I T A L S 1. The Lenders have entered into a Secured Credit Agreement of even date herewith (as such agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT," which term shall also include and refer to any successor or replacement facility of Company or its Subsidiaries designated in writing as such by Borrowers' Agent with Collateral Agent's consent and acknowledgement of the termination of the predecessor Credit Agreement by an agent for the lenders thereunder) with certain subsidiaries of Company and Packaging as Borrowers (the "BORROWERS") and with Company as guarantor pursuant to Section 9 thereof and Owens-Illinois General, Inc., as Borrowers' Agent. In addition, in connection therewith, Packaging has executed a guaranty (the "SUBSIDIARY Guaranty") of all Obligations as defined in and now or hereafter existing under or in respect of the Credit Agreement (collectively, the "OBLIGATIONS"). 2. Company is the legal and beneficial owner of (i) the shares of stock described in PART I of SCHEDULE I hereto (the "COMPANY PLEDGED SHARES") issued by the corporations named therein, which shares constitute the percentage of all of the issued and outstanding shares of all classes of capital stock of such companies identified in PART I of said SCHEDULE I, and (ii) the indebtedness described in PART II of said SCHEDULE I (the "COMPANY PLEDGED DEBT") issued by the obligors named therein. Packaging is the legal and beneficial owner of (i) the shares of stock described in PART I of SCHEDULE II hereto (the "PACKAGING PLEDGED SHARES") issued by the corporation named therein, which shares constitute the percentage of all of the issued and outstanding shares of all classes of capital stock of such company identified in PART I of said SCHEDULE II, and (ii) the indebtedness described in PART II of said SCHEDULE II (the "PACKAGING PLEDGED DEBT") issued by the obligor named therein (collectively, the Company Pledged Shares and the Packaging Pledged Shares are referred to herein as the "PLEDGED SHARES," and the Company Pledged Debt and the Packaging Pledged Debt are referred to herein as the "PLEDGED DEBT"). 3. Owens-Illinois, Inc., a Delaware corporation ("HOLDINGS"), and the Existing Senior Note Trustees have entered into the Indentures dated as of May 15, 1997 and May 20, 1998 (each, as amended, supplemented or otherwise modified from time to time, an "EXISTING SENIOR NOTE INDENTURE" and collectively, the "EXISTING SENIOR NOTE INDENTURES") pursuant to which Holdings has issued the following senior notes and debentures (collectively, the "EXISTING SENIOR NOTES"): (i) the 7.85% Senior Notes due 2004 in the aggregate principal amount of $300,000,000; (ii) the 7.15% Senior Notes due 2005 in the aggregate principal amount of $350,000,000; (iii) the 8.10% Senior Notes due 2007 in the aggregate principal amount of $300,000,000; (iv) the 7.35% Senior Notes due 2008 in the aggregate principal amount of $250,000,000; (v) the 7.50% Senior Debentures due 2010 in the aggregate principal amount of $250,000,000; and (vi) the 7.80% Senior Debentures due 2018 in the aggregate principal amount of $250,000,000. 4. If the Supplemental Indenture Condition has been satisfied, the Company and Packaging may guaranty the obligations of Holdings under the Existing Senior Note Indentures and the Existing Senior Notes issued thereunder pursuant to subordinated guaranties (the "EXISTING SENIOR NOTES SUBORDINATED Guaranty"). 5. It is contemplated that, from time to time Subsidiaries of Company may incur obligations to Lenders or affiliates of Lenders arising out of loans, advances, overdrafts, interest rate, currency or hedge products and other derivative exposures or extensions of credit to the extent permitted under the Credit Agreement ("OTHER PERMITTED CREDIT EXPOSURE"). Company and Packaging have guarantied such Other Permitted Credit Exposure pursuant, and subject, to Section 9 of the Credit Agreement and the Subsidiary Guaranty, respectively. Each Holder of any such Other Permitted Credit Exposure is referred to herein as an "OTHER PERMITTED CREDIT EXPOSURE HOLDER" and, collectively, all such Holders are referred to as "OTHER PERMITTED CREDIT EXPOSURE HOLDERS"). The documents and instruments evidencing or relating to any such Other Permitted Credit Exposure are referred to as the "OTHER PERMITTED CREDIT EXPOSURE DOCUMENTS." 6. It is contemplated that, from time to time to the extent permitted by the Credit Agreement, Company and/or Packaging may issue or guaranty certain New Senior Debt (as defined in the Credit Agreement). Any indenture, debenture, note, guaranty or other document executed by Company or Packaging in connection with the issuance of any such New Senior Debt is referred to herein as a "NEW SENIOR DEBT DOCUMENT" individually and the "NEW SENIOR DEBT DOCUMENTS" collectively. Any trustee or like representative of the holders of any such New Senior Debt is referred to herein as a "NEW SENIOR DEBT REPRESENTATIVE." 7. It is contemplated that, from time to time to the extent permitted by the Credit Agreement, Holdings may issue on a senior basis, and Company and/or Packaging may issue or guaranty on a subordinated basis, certain Refinancing Senior Debt (as defined in the Credit Agreement). Any indenture, debenture, note, guaranty or other document executed by Holdings, Company or Packaging in connection with the issuance of any such Refinancing Senior Debt is referred to herein as a "REFINANCING SENIOR DEBT DOCUMENT" individually and the "REFINANCING SENIOR DEBT DOCUMENTS" collectively. Any trustee or like representative of the holders of any such Refinancing Senior Debt is referred to herein as a "REFINANCING SENIOR DEBT REPRESENTATIVE." 2 8. It is contemplated that, from time to time to the extent permitted by the Credit Agreement, Holdings, Company and/or Packaging may issue or guaranty certain New Junior Debt (as defined in the Credit Agreement). Any indenture, debenture, note, guaranty or other document executed by Holdings, Company or Packaging in connection with the issuance of any such New Junior Debt is referred to herein as a "NEW JUNIOR DEBT DOCUMENT" individually and the "NEW JUNIOR DEBT DOCUMENTS" collectively. Any trustee or like representative of the holders of any such New Junior Debt is referred to herein as a "NEW JUNIOR DEBT REPRESENTATIVE." 9. It is contemplated that Company may from time to time, assume from Holdings or enter into Interest Rate Agreements and Currency Agreements with one or more Lenders or their respective affiliates (collectively, the "INTEREST RATE EXCHANGERS" or the "CURRENCY EXCHANGERS," as the case may be, and the obligations under such agreements, including the obligation to make payments in the event of early termination thereunder being the "INTEREST RATE Obligations" or the "CURRENCY OBLIGATIONS," as the case may be). Such Interest Rate Obligations and Currency Obligations are guarantied pursuant to Company's guaranty under the Credit Agreement and Packaging's Subsidiary Guaranty. 10. The Pledgors wish to pledge and grant security interests in the Pledged Collateral in favor of the Collateral Agent for the benefit of the Lenders, the Other Permitted Credit Exposure Holders, the Interest Rate Exchangers, the Currency Exchangers, and the holders of any New Senior Debt and the New Senior Debt Representatives (collectively, the "SENIOR SECURED PARTIES"), for the benefit of the Refinancing Senior Debt Representatives and, only if the Supplemental Indenture Condition has been satisfied, the holders of the Existing Senior Notes and the Existing Senior Note Trustees and (collectively, the "SECOND PRIORITY SECURED PARTIES") and for the benefit of the holders of any New Junior Debt and the New Junior Debt Representatives (the "THIRD PRIORITY SECURED PARTIES"; the Senior Secured Parties and the Second Priority Secured Parties and the Third Priority Secured Parties being collectively referred to herein as the "SECURED PARTIES"); "SUPPLEMENTAL INDENTURE CONDITION" means the Existing Senior Note Trustees and Holdings, the Company and Packaging have executed and delivered one or more supplemental indentures which effect amendments to the Existing Senior Note Indentures with respect to each series of Existing Senior Notes to provide for the Existing Senior Notes Subordinated Guaranty and certain terms and conditions relating to the Pledged Collateral, which supplemental indentures shall be in form and substance satisfactory to and approved by the Agent and shall not be amended, amended and restated or otherwise modified except as permitted by the Credit Agreement. 11. Concurrently herewith, the Collateral Agent and the current Other Permitted Credit Exposure Holders have entered into an Intercreditor Agreement (such Intercreditor Agreement as it may hereafter be amended, amended and restated or otherwise modified from time to time being the "INTERCREDITOR AGREEMENT") which provides for, INTER, ALIA, the ----- ---- appointment of the Collateral Agent to administer the Pledged Collateral. Any New Senior Debt Representative, Refinancing Senior Debt Representative, New Junior Debt Representative, Interest Rate Exchanger, Currency Exchanger, and any future Other Permitted Credit Exposure Holder shall only be entitled to the benefits of this Agreement if such Person shall have executed and delivered to the Collateral Agent a counterpart of the Intercreditor Agreement or an acknowledgment to the Intercreditor Agreement (in the form attached thereto) 3 acknowledged by the Pledgors or Borrower's Agent, and, in the case of the Existing Senior Note Trustees and the Existing Senior Note holders, if the Supplemental Indenture Condition has been satisfied. NOW, THEREFORE, in consideration of the premises the parties hereto agree as follows: SECTION 1. PLEDGES. 1.1 SENIOR PLEDGE A. BY COMPANY. Company hereby pledges to the Collateral Agent and grants to the Collateral Agent for the ratable benefit of the Senior Secured Parties a first priority security interest in the following (the "COMPANY PLEDGED COLLATERAL") to secure the Senior Secured Obligations (as defined in SECTION 2): (a) the Company Pledged Shares and the certificates representing the Company Pledged Shares and any interest of Company in the entries on the books of any financial intermediary pertaining to the Company Pledged Shares, and, subject to SECTION 6, all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Company Pledged Shares; (b) all additional shares of stock of any issuer of the Company Pledged Shares from time to time acquired by Company in any manner (which shares shall be deemed to be part of the Company Pledged Shares), and the certificates representing such additional shares and any interest of Company in the entries on the books of any financial intermediary pertaining to such additional shares, and, subject to SECTION 6, all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (c) the Company Pledged Debt and the instruments evidencing the Pledged Debt, and all interest, cash instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Company Pledged Debt; and (d) all proceeds of any of the foregoing. B. BY PACKAGING. Packaging hereby pledges to the Collateral Agent and grants to the Collateral Agent for the ratable benefit of the Senior Secured Parties a first priority security interest in the following (the "PACKAGING PLEDGED COLLATERAL") to secure the Senior Secured Obligations: (a) the Packaging Pledged Shares and the certificates representing the Packaging Pledged Shares and any interest of Packaging in the entries on the books of any financial intermediary pertaining to the Packaging Pledged Shares, and, subject to SECTION 6, all dividends, cash options, warrants, rights, instruments and other property or proceeds from 4 time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Packaging Pledged Shares; (b) all additional shares of stock of any issuer of the Packaging Pledged Shares from time to time acquired by Packaging in any manner (which shares shall be deemed to be part of the Packaging Pledged Shares), and the certificates representing such additional shares and any interest of Packaging in the entries on the books of any financial intermediary pertaining to such additional shares, and, subject to Section 6, all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (c) the Packaging Pledged Debt and the instruments evidencing the Pledged Debt, and all interest, cash instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Packaging Pledged Debt; and (d) all proceeds of any of the foregoing. The Company Pledged Collateral and the Packaging Pledged Collateral is referred to herein collectively as the "PLEDGED COLLATERAL." 1.2 SECOND PRIORITY PLEDGE. The Pledgors hereby pledge to the Collateral Agent and grant to the Collateral Agent for the ratable benefit of the Second Priority Secured Parties a second priority security interest in the Pledged Collateral to secure the Second Priority Secured Obligations (as defined in SECTION 2). 1.3 THIRD PRIORITY PLEDGE. The Pledgors hereby pledge to the Collateral Agent and grant to the Collateral Agent for the ratable benefit of the Third Priority Secured Parties a third priority security interest in the Pledged Collateral to Secure the Third Priority Secured Obligations (as defined in SECTION 2). SECTION 2. SECURED OBLIGATIONS; PRIORITY. 2.1 SENIOR SECURED OBLIGATIONS. This Agreement secures, and the Pledged Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by acceleration or otherwise (including the payment of amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), of all Obligations, all obligations of the Pledgors under any Other Permitted Credit Exposure Documents, all obligations of either Pledgor or other permitted obligor under any New Senior Debt Documents and all Interest Rate Obligations and Currency Obligations now or hereinafter existing under or in respect of the Interest Rate Agreements and the Currency Agreements, in each case whether for principal, premium or interest (including, without limitation, interest which, but for the filing of a petition in a bankruptcy, reorganization or other similar proceeding with respect to the Pledgor, would accrue on such obligations), payments for early termination, payments for settlement of amounts due under any such agreement, fees, expenses or otherwise and all obligations of either Pledgor or other permitted obligor now or hereafter existing under this Agreement (all such obligations 5 being the "SENIOR SECURED OBLIGATIONS"); provided that the pledge made and security interest granted in SECTION 1 and any other provisions of this Agreement shall be effective as to any obligations in respect of any Other Permitted Credit Exposure Documents, New Senior Debt Documents, Interest Rate Agreements or Currency Agreements only if the holders of such obligations or their representatives shall have executed and delivered to the Collateral Agent a counterpart of the Intercreditor Agreement or an acknowledgment to the Intercreditor Agreement (in the form attached thereto) acknowledged by the Pledgors or Borrowers' Agent, as applicable. For purposes of determining the amount of Senior Secured Obligations relating to any obligation with respect to which a Person other than a Pledgor is the direct or primary obligor and with respect to which a Pledgor is a guarantor (including by way of providing security), the total amount of such Senior Secured Obligations shall be calculated without duplication of the amount of such direct or primary obligation secured by the Pledged Collateral and the related guaranty obligations of the Pledgors secured by the Pledged Collateral. 2.2 SECOND PRIORITY SECURED OBLIGATIONS. This Agreement secures, and the Pledged Collateral is collateral security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise (including amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), of all obligations of the Pledgors now or hereafter existing under the Existing Senior Notes Subordinated Guaranty and all obligations under the Existing Senior Note Indentures and the Existing Senior Notes issued thereunder (only if the Supplemental Indenture Condition has been satisfied) and all obligations of either Pledgor or other permitted obligor under any Refinancing Senior Debt Documents in each case whether for principal, premium, interest (including, without limitation, interest which, but for the filing of a petition in a bankruptcy, reorganization or other similar proceeding with respect to a Pledgor, would accrue on such obligations), fees, expenses or otherwise, and all obligations of the Pledgors now or hereafter existing under this Agreement (all such obligations being the "SECOND PRIORITY SECURED OBLIGATIONS"); provided that the pledge made and security interest granted in SECTION 1 and any other provisions of this Agreement shall be effective as to any obligations in respect of any Refinancing Senior Debt only if the holders of such obligation or a Refinancing Senior Debt Representative shall have executed and delivered to the Collateral Agent a counterpart of the Intercreditor Agreement or an acknowledgment to the Intercreditor Agreement (in the form attached thereto) acknowledged by the Pledgors or Borrowers' Agent, as applicable. For purposes of determining the amount of Second Priority Secured Obligations relating to any obligation with respect to which a Pledgor is a guarantor (including by way of providing security), the total amount of such Second Priority Secured Obligations shall be calculated without duplication of the amount of such direct or primary obligation secured by the Pledged Collateral and the related guaranty obligations of the Pledgors secured by the Pledged Collateral. 2.3 THIRD PRIORITY SECURED OBLIGATIONS. This Agreement secures, and the Pledged Collateral is collateral security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise (including amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), of all obligations of the Pledgors or other permitted obligors now or hereafter existing under any New Junior Debt Documents, whether for principal, premium, interest (including, without limitation, interest which, but for the filing of a petition in a bankruptcy, reorganization or other similar proceeding with respect to a Pledgor, would accrue on such obligations), fees, 6 expenses or otherwise, and all obligations of the Pledgors now or hereafter existing under this Agreement (all such obligations being the "THIRD PRIORITY SECURED OBLIGATIONS"); provided that the pledge made and the security interest granted in SECTION 1 and any other provisions of this Agreement shall be effective as to any obligations in respect of New Junior Debt only if the holders of any such obligation or an applicable New Junior Debt Representative shall have executed and delivered to the Collateral Agent a counterpart of the Intercreditor Agreement or an acknowledgment to the Intercreditor Agreement (in the form attached thereto) acknowledged by the Pledgors. For purposes of determining the amount of Third Priority Secured Obligations relating to any obligation with respect to which a Pledgor is a guarantor (including by way of providing security), the total amount of such Third Priority Secured Obligations shall be calculated without duplication of the amount of such direct or primary obligation secured by the Pledged Collateral and the related guaranty obligations of the Pledgors secured by the Pledged Collateral. The Senior Secured Obligations, the Second Secured Obligations and the Third Priority Secured Obligations collectively are referred to herein as the "SECURED OBLIGATIONS". 2.4 RIGHTS IN PLEDGED COLLATERAL. Notwithstanding anything to the contrary contained in the Credit Agreement, any Other Permitted Credit Exposure Document, Currency Agreement, Interest Rate Agreement, New Senior Debt Document, Existing Senior Note Indenture, Existing Senior Notes Subordinated Guaranty, Refinancing Senior Debt Document or New Junior Debt Document, and irrespective of: (a) the time, order or method of attachment or perfection of the security interests created hereby; (b) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any Pledged Collateral, and (c) the rules for determining priority under the Uniform Commercial Code or any other law or rule governing the relative priorities of secured creditors, any security interest in any Pledged Collateral heretofore or hereafter granted to secure any Senior Secured Obligation has and shall have priority, to the extent of any unpaid Senior Secured Obligations, over any security interest in such Pledged Collateral granted to secure the Second Priority Secured Obligations or the Third Priority Secured Obligations, and any security interest in any Pledged Collateral heretofore or hereafter granted to secure any Second Priority Secured Obligation has and shall have priority, to the extent of any unpaid Second Priority Secured Obligations, over any security interest in such Pledged Collateral granted to secure the Third Priority Secured Obligations. SECTION 3. DELIVERY OF PLEDGED COLLATERAL. 3.1 All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time upon or after the occurrence of an Event of Default (as defined in SECTION 11) and without notice to either Pledgor, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Pledged 7 Collateral. In addition, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. REPRESENTATIONS AND WARRANTIES 4.1 BY COMPANY. Company hereby represents and warrants to the Collateral Agent and each Secured Party as follows: (a) Company is, and at the time of delivery of any Company Pledged Collateral to the Collateral Agent pursuant to SECTION 3 will be, the legal and beneficial owner of the Company Pledged Collateral free and clear of any Lien except for the liens and security interests created by this Agreement. (b) Company has full power, authority and legal right to pledge all the Company Pledged Collateral pursuant to this Agreement. (c) No consent of any other party (including, without limitation, stockholders or creditors of Company) and no consent, authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (x) for the pledge by Company of the Company Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Company or (y) for the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Company Pledged Collateral pursuant to this Agreement; except (a) for foreign governmental actions, notices or filings required for actions referred to in clauses (x) and (y) as to Company Pledged Shares issued by corporations which own, directly or indirectly, the stock of Foreign Entities and (b) as may be required in connection with such disposition by laws affecting the offering and sale of securities generally. (d) All of the Company Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. The Company Pledged Debt has been duly authorized, authenticated or issued and delivered, and is the legal, valid and binding obligation of the issuers thereof, and is not in default. (e) The pledge of the Company Pledged Shares and the Company Pledged Debt pursuant to this Agreement, together with delivery of the shares and notes, accompanied by duly executed instruments of transfer or assignment in blank and an effective endorsement, creates a valid and perfected first priority security interest in the Company Pledged Shares and the Company Pledged Debt securing the payment of the Senior Secured Obligations, a valid and perfected second priority security interest in the Company Pledged Shares and the Company Pledged Debt securing the payment of the Second Priority Secured Obligations, and a valid and perfected third priority security interest in the Company Pledged Shares and the Company Pledged Debt securing the payment of the Third Priority Secured Obligations. (f) As of the date hereof, the Company Pledged Shares consisting of capital stock of the Persons identified in PART I of SCHEDULE I annexed hereto constitute the percentage 8 of the issued and outstanding shares of stock of such Persons as identified in PART I of SCHEDULE I annexed hereto. The Company Pledged Debt constitutes all of the issued and outstanding debt obligations owing to Company as of the date specified therein by the Persons identified in PART II of SCHEDULE I annexed hereto. (g) Except as otherwise permitted by the Credit Agreement, the Company at all times will be sole beneficial owner of the Company Pledged Collateral. (h) The pledge of the Company Pledged Collateral pursuant to this Agreement does not violate Regulations T, U or X of the Federal Reserve Board. 4.2 BY PACKAGING. Packaging hereby represents and warrants to the Collateral Agent and each Secured Party as follows: (a) Packaging is, and at the time of delivery of any Packaging Pledged Collateral to the Collateral Agent pursuant to SECTION 3 will be, the legal and beneficial owner of the Packaging Pledged Collateral free and clear of any Lien except for the lien and security interest created by this Agreement. (b) Packaging has full power, authority and legal right to pledge all the Packaging Pledged Collateral pursuant to this Agreement. (c) No consent of any other party (including, without limitation, stockholders or creditors of Packaging) and no consent, authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (x) for the pledge by Packaging of Packaging Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Packaging or (y) for the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Packaging Pledged Collateral pursuant to this Agreement; except (a) for foreign governmental actions, notices or filings required for actions referred to in clauses (x) and (y) as to Packaging Pledged Shares issued by corporations which own, directly or indirectly, the stock of Foreign Entities and (b) as may be required in connection with such disposition by laws affecting the offering and sale of securities generally. (d) All of the Packaging Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. The Packaging Pledged Debt has been duly authorized, authenticated or issued and delivered, and is the legal, valid and binding obligation of the issuers thereof, and is not in default. (e) The pledge of the Packaging Pledged Shares and the Packaging Pledged Debt pursuant to this Agreement, together with delivery of shares and notes, accompanied by duly executed instruments of transfer of assignment in blank and an effective endorsement, creates a valid and perfected first priority security interest in the Packaging Pledged Shares and the Packaging Pledged Debt securing the payment of the Senior Secured Obligations, a valid and perfected second priority security interest in the Packaging Pledged Shares and the Packaging Pledged Debt securing the payment of the Second Priority Secured Obligations and a valid and perfected third priority security 9 interest in the Packaging Pledged Shares and the Packaging Pledged Debt securing the payment of the Third Priority Secured Obligations. (f) As of the date hereof, the Packaging Pledged Shares consisting of capital stock of the Persons identified in Part I of Schedule II annexed hereto constitute the percentage of the issued and outstanding shares of stock of such Persons as identified in Part I of Schedule II annexed hereto. The Packaging Pledged Debt constitutes all of the issued and outstanding Debt Obligations owing to Packaging as of the date hereof by the Persons identified in Part II of Schedule II annexed hereto. (g) Except as otherwise permitted by the Credit Agreement, Packaging at all times will be sole beneficial owner of the Packaging Pledged Collateral. (h) The pledge of the Packaging Pledged Collateral pursuant to this Agreement does not violate Regulations T, U or X of the Federal Reserve Board. SECTION 5. SUPPLEMENTS, FURTHER ASSURANCES. 5.1 Each Pledgor agrees that at any time and from time to time, at the expense of such Pledgor, such Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. 5.2 Each Pledgor further agrees that it will, upon obtaining any shares of any Person required to be pledged pursuant to Section 1.1A(b) or 1.1(B)(b), promptly (and in any event within five (5) Business Days) deliver to the Collateral Agent a pledge amendment, duly executed by the Pledgor, in substantially the form of SCHEDULE III hereto (a "PLEDGE AMENDMENT"), in respect of the additional Pledged Shares which are to be pledged pursuant to this Agreement. Each Pledgor hereby authorizes the Collateral Agent to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to the Collateral Agent shall for all purposes hereunder be considered Pledged Collateral; provided, that, the failure of a Pledgor to execute a Pledge Amendment with respect to any additional Pledged Shares pursuant to this Agreement shall not impair the security interest of Collateral Agent therein or otherwise adversely affect the rights and remedies of Collateral Agent hereunder with respect thereto. SECTION 6. VOTING RIGHTS; DIVIDENDS; ETC. 6.1 As long as no Event of Default (as defined in SECTION 11) shall have occurred and be continuing: (a) Pledgors shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement and the Credit Agreement; PROVIDED, HOWEVER, that each Pledgor shall give the Collateral Agent at least 5 days' prior written notice of the manner in which it intends to exercise any such right; PROVIDED, FURTHER, 10 HOWEVER, that neither (i) the voting by a Pledgor of any Pledged Shares for, or a Pledgor's consent to, the election of directors at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting nor (ii) a Pledgor's consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement (including, without limitation, impairing in any material manner the Pledged Collateral or the material rights of any of the Secured Parties), within the meaning of this SECTION 6.1(A), and no notice of any such voting or consent need be given to the Collateral Agent. (b) The Pledgors shall be entitled to receive and retain, and to utilize free and clear of the Lien of this Agreement, any and all dividends, distributions, principal and interest paid in respect of the Pledged Collateral; provided, however, that any and all dividends and other distributions in equity securities shall be, and shall be forthwith delivered to the Collateral Agent to hold as, Pledged Collateral and shall, if received by a Pledgor, be received in trust for the benefit of the Collateral Agent, be segregated from the other property or funds of such Pledgor, and be forthwith delivered to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). (c) In order to permit the Pledgors to exercise the voting and other rights which they are entitled to exercise pursuant to SECTION 6.1(A) above and to receive the dividends, distributions, principal or interest payments which they are authorized to receive and retain pursuant to SECTION 6.1(B) above, the Collateral Agent shall, if necessary, upon written request of a Pledgor, from time to time execute and deliver (or cause to be executed and delivered) to such Pledgor all such proxies, dividend payment orders and other instruments as such Pledgor may reasonably request. (d) Upon the occurrence and during the continuance of an Event of Default: (i) Upon written notice from the Collateral Agent to a Pledgor, all rights of such Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to SECTION 6.1(A) above shall cease, and all such rights shall thereupon become vested in the Collateral Agent which shall thereupon have the sole right to exercise such voting and other consensual rights during the continuance of such Event of Default. (ii) Other than amounts to be used by a Pledgor to directly or indirectly make Holdings Ordinary Course Payments permitted to be paid pursuant to Section 6.5 of the Credit Agreement, all rights of a Pledgor to receive the dividends, distributions, principal and interest payments which it would otherwise be authorized to receive and retain pursuant to SECTION 6.1(B) above shall cease and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends, distributions, principal and interest payments during the continuance of such Event of Default. 11 (e) In order to permit the Collateral Agent to receive all dividends and other distributions to which it may be entitled under SECTION 6.1(D) above, to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to SECTION 6.1(D) above, and to receive all dividends, distributions, principal and interest payments and other distributions which it may be entitled to receive under SECTION 6.1(B) above, each Pledgor shall, if necessary, upon written notice from the Collateral Agent, from time to time execute and deliver to the Collateral Agent appropriate proxies, dividend payment orders and other instruments as the Collateral Agent may reasonably request. (f) All dividends, distributions, principal and interest payments which are received by either Pledgor contrary to the provisions of SECTION 6.1(D) above shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Pledgor and shall be forthwith paid over to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). SECTION 7. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES. 7.1 TRANSFERS AND OTHER LIENS. Each Pledgor agrees that it will not, except as permitted by the Credit Agreement (i) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Pledged Collateral, (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the liens and security interests under this Agreement, or (iii) permit any issuer of Pledged Shares to merge or consolidate unless all the outstanding capital stock of the surviving or resulting corporation is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding shares of any other constituent corporation; PROVIDED, HOWEVER, that in the event of an Asset Sale permitted by the Credit Agreement wherein the assets subject to such Asset Sale are Pledged Shares, the Collateral Agent shall release the Pledged Shares that are the subject of such Asset Sale to the applicable Pledgor free and clear of the lien and security interest under this Agreement (a) so long as any Obligations remain outstanding under the Intercreditor Agreement, concurrently with the receipt of advice from the Lender Agent (as defined in the Credit Agreement) thereunder that arrangements satisfactory to it have been made for delivery to it of the Net Asset Sale Proceeds of such Asset Sale to which the Lenders, New Senior Debt holders and Other Permitted Credit Exposure Holders, Interest Rate Exchangers and Currency Exchangers are entitled under the Credit Agreement and the Intercreditor Agreement, (b) after such time as all Obligations under the Credit Agreement have been paid in full and the Credit Agreement and the Letters of Credit have terminated, in the event that any other Secured Parties are entitled to receive any portion of the proceeds of such Asset Sale, concurrently with the receipt of advice from the agent or trustee for such Secured Parties that arrangements satisfactory to it have been made for delivery to it of the amounts required to be paid to such Secured Parties out of the proceeds of such Asset Sale, and (c) in the event no Secured Party is entitled to receive any portion of the proceeds of such Asset Sale, concurrently with the consummation of such Asset Sale; and provided, further, that notwithstanding anything herein to the contrary, (x) the Collateral Agent shall release Pledged Shares or other Pledged Collateral from the liens and security interests of this Agreement as may be specified by the Lender Agent upon the approval of the release of such Pledged Shares or other Pledged Collateral by the requisite percentage of 12 Lenders under the Credit Agreement, and (y) the Collateral Agent shall release Pledged Shares or other Pledged Collateral from the liens and security interests of this Agreement, upon satisfaction of the conditions set forth in, and in accordance with, SECTION 18, below. 7.2 ADDITIONAL SHARES. Company agrees that it will (i) cause each issuer of Company Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Company Pledged Shares issued by such issuer, except to Company or as otherwise consented to by Requisite Lenders, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other equity securities of each issuer of Company Pledged Shares. Packaging agrees that it will (i) cause each issuer of Packaging Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Packaging Pledged Shares issued by such issuer, except to Packaging or as otherwise consented to by Requisite Lenders and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other equity securities of each issuer of Packaging Pledged Shares. SECTION 8. COLLATERAL AGENT APPOINTED ATTORNEY-IN- FACT. Each Pledgor hereby appoints the Collateral Agent such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, from time to time in the Collateral Agent's discretion to take any action and to execute any instrument which the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to such Pledgor representing any dividend, interest payment or other distribution in respect of such Pledged Collateral or any part thereof and to give full discharge for the same. SECTION 9. COLLATERAL AGENT MAY PERFORM. If either Pledgor fails to perform any agreement contained herein after receipt of a written request to do so from the Collateral Agent, the Collateral Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Collateral Agent, including the reasonable fees and expenses of its counsel, incurred in connection therewith shall be payable by the Pledgors under SECTION 13 hereof. SECTION 10. REASONABLE CARE. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equivalent to that which the Collateral Agent, in its individual capacity, accords its own property consisting of negotiable securities, it being understood that neither the Collateral Agent nor any other Secured Party shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Collateral Agent or any other Secured Party has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of 13 the Pledged Shares and Pledged Debt) to preserve rights against any Person with respect to any Pledged Collateral. SECTION 11. REMEDIES UPON DEFAULT; DECISIONS RELATING TO EXERCISE OF REMEDIES. 11.1 REMEDIES UPON DEFAULT. Subject to SECTIONS 11.2 and 11.3, (i) if any Event of Default under and as defined in the Credit Agreement, or (ii) after such time as all Obligations shall have been paid in full and the Credit Agreement and the Letters of Credit have terminated, and PROVIDED that the Pledged Collateral then secures the payment and performance of any obligations under any New Senior Debt Documents, any obligations under any Other Permitted Credit Exposure Documents, any Interest Rate Obligations or any Currency Obligations, if any event of default under (A) any Interest Rate Agreement or Currency Agreement which is secured by the Pledged Collateral, (B) any obligations under any New Senior Debt Documents which are secured by the Pledged Collateral, or (C) any obligations in respect of any Other Permitted Credit Exposure Documents which are secured by the Pledged Collateral, as the case may be, or (iii) after such time as all Senior Secured Obligations shall have been indefeasibly paid in full, and PROVIDED that the Pledged Collateral then secures the payment and performance of the Second Priority Secured Obligations, if any event of default under any Existing Senior Note Indenture or any obligations under any Refinancing Senior Debt Documents which are secured by the Pledged Collateral or (iv) after such time as all Senior Secured Obligations and all Second Priority Secured Obligations have been indefeasibly paid in full, and provided that the Pledged Collateral then secures the payment and performance of the Third Priority Secured Obligations, if any event of default under any New Junior Debt Document (each of the events of default described in the foregoing CLAUSES (I) through (IV) (subject to any provisos set forth therein) being referred to herein as an "EVENT OF DEFAULT") shall have occurred and be continuing: (a) The Collateral Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "CODE") in effect in the State of New York at that time, and the Collateral Agent may also in its sole discretion, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. The Collateral Agent or any other Secured Party may be the purchaser of any or all of the Pledged Collateral at any such sale but shall not be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at such sale, to use and apply any of the Secured Obligations owed to such Person as a credit on account of the purchase price of any Pledged Collateral payable by such Person at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of either Pledgor, and each Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Pledgor agrees that, to the extent notice 14 of sale shall be required by law, at least ten days' notice to such Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Pledgor hereby waives any claims against the Collateral Agent arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Collateral Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) Each Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "SECURITIES Act"), and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act), and, notwithstanding such circumstances, agrees that any private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such Pledgor would agree to do so. (c) If the Collateral Agent determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, each Pledgor shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to the Collateral Agent all such information as the Collateral Agent may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by the Collateral Agent as exempt transactions under the Securities Act and the rules of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. 11.2 DECISIONS RELATING TO EXERCISE OF REMEDIES. Notwithstanding anything in this Agreement to the contrary, as provided in the Intercreditor Agreement, the Collateral Agent shall exercise, or shall refrain from exercising, any remedy provided for in SECTION 11 in accordance with the instructions of Requisite Obligees (as defined in the Intercreditor Agreement) and the Interest Rate Exchangers, the Currency Exchangers, any Other Permitted Credit Exposure Holders, the holders of any New Senior Debt or any New Senior Debt Representative, the holders of the Existing Senior Notes and any Existing Senior Note Trustee, the holders of any Refinancing Senior Debt and any Refinancing Senior Debt Representative and the holders of any New Junior Debt and any New Junior Debt Representative shall be bound by such instructions; 15 and the sole rights of the Interest Rate Exchangers, the Currency Exchangers, Other Permitted Credit Exposure Holders, the holders of any New Senior Debt, holders of the Existing Senior Notes and the Existing Senior Note Trustees, the holders of any Refinancing Senior Debt, and the holders of any New Junior Debt and their respective representatives under this Agreement shall be to be secured by the Pledged Collateral and to receive the payments provided for in SECTION 12 hereof. 11.3 LIMITATIONS ON EXERCISE OF REMEDIES. Notwithstanding anything in this Agreement to the contrary, as provided in the Intercreditor Agreement, (i) the Collateral Agent shall not exercise any remedy provided for in SECTION 11 for the purpose of realizing value on the Pledged Collateral to be applied to the payment of the Second Priority Secured Obligations unless (a) such remedy is concurrently being exercised for the purpose of realizing value on the Pledged Collateral to be applied to the payment of the Senior Secured Obligations or (b) all Senior Secured Obligations shall have been indefeasibly paid in full, and (ii) the Collateral Agent shall not exercise any remedy provided for in SECTION 11 for the purpose of realizing value on the Pledged Collateral to be applied to the payment of the Third Priority Secured Obligations unless (a) such remedy is concurrently being exercised for the purpose of realizing value on the Pledged Collateral to be applied to the payment of the Senior Secured Obligations and the Second Secured Obligations or (b) all Senior Secured Obligations and all Second Priority Secured Obligations shall have been indefeasibly paid in full. 11.4 NO IMPAIRMENT OF SUBORDINATION IN RIGHT OF PAYMENTS. The Intercreditor Agreement sets forth and any New Junior Debt Documents may set forth certain agreements of the Pledgors, and the holders of the New Junior Debt may be subject to certain obligations, which subordinate the right of payment of such New Junior Debt to the prior payment of "Senior Indebtedness" or terms of similar import. Notwithstanding anything in this Agreement to the contrary, such agreements and obligations of the Pledgors and the holders of the New Junior Debt shall not be impaired in any manner by the pledge of the Pledged Collateral, the security interests granted by this Agreement or the exercise of rights provided hereunder, and the rights of the holders of such "Senior Indebtedness" shall not be impaired in any manner by any such action. SECTION 12. APPLICATION OF PROCEEDS. After and during the continuance of an Event of Default, any cash held by the Collateral Agent as Pledged Collateral and all cash proceeds received by the Collateral Agent (all such cash being "PROCEEDS") in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral pursuant to the exercise by the Collateral Agent of its remedies as a secured creditor as provided in SECTION 11 of this Agreement shall be applied promptly from time to time by the Collateral Agent as follows: FIRST, to the payment of the costs and expenses of such sale, collection or other realization, including reasonable compensation to the Collateral Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith; 16 SECOND, to the payment of the Senior Secured Obligations (including any Aggregate Available Amount (as defined in the Security Agreement) deposits into the L/C Collateral Account for outstanding Letters of Credit, provided that if such Letters of Credit expire without being fully drawn, then at that time, such excess amounts shall be applied as provided in this SECTION 12 to then outstanding Senior Secured Obligations) for the ratable benefit of the holders thereof; PROVIDED that in making such application in respect of outstanding obligations under New Senior Debt Documents, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the New Senior Debt Representatives the New Senior Debt holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties (such term being used in this SECTION 12 as defined in Section 7(c) of the Intercreditor Agreement) pursuant to Section 7(c) of the Intercreditor Agreement; THIRD, only after payment in full of all Senior Secured Obligations, to the payment of the Second Priority Secured Obligations for the ratable benefit of the holders thereof; PROVIDED, THAT, that in making such application to the Existing Senior Note Trustees, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the holders of the Existing Senior Notes such holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties pursuant to Section 7(c) of the Intercreditor Agreement, PROVIDED, FURTHER, that in making such application in respect of obligations outstanding under Refinancing Senior Debt Documents, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the Refinancing Senior Debt Representatives such Refinancing Senior Debt holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties pursuant to Section 7(c) of the Intercreditor Agreement; FOURTH, only after payment in full of all Senior Secured Obligations and all Second Priority Secured Obligations, to the payment of the Third Priority Secured Obligations for the ratable benefit of the holders thereof; PROVIDED, THAT, in making such application in respect of obligations outstanding under New Junior Debt Documents, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the New Junior Debt Representatives such New Junior Debt holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties pursuant to Section 7(c) of the Intercreditor Agreement; and FIFTH, after payment in full of all Secured Obligations, to applicable Pledgor, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such Proceeds. At the time of any application of Proceeds by the Collateral Agent pursuant to this SECTION 12, the Collateral Agent shall provide the Existing Senior Note Trustees (only if the Supplemental Indenture Condition has been satisfied) and any Other Permitted Credit Exposure Holder, New Senior Debt Representative, Refinancing Senior Debt Representative and/or New Junior Debt Representative with a certificate setting forth the total amount paid to the Collateral Agent pursuant to Section 7(c) of the Intercreditor Agreement and a calculation of the amounts, 17 if any, deducted from Proceeds paid to Existing Senior Note Trustees, Other Permitted Credit Exposure Holders, New Senior Debt Representatives, Refinancing Senior Debt Representatives or New Junior Debt Representatives, as the case may be. SECTION 13. EXPENSES. The Pledgors will upon demand pay to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent or any other Secured Party hereunder or (iv) the failure by any Pledgor to perform or observe any of the provisions hereof. The Pledgors' obligations under this SECTION 13 shall be joint and several. SECTION 14. NO WAIVER. No failure on the part of the Collateral Agent to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are to the fullest extent permitted by law cumulative and are not exclusive of any remedies provided by law. SECTION 15. COLLATERAL AGENT. The Collateral Agent has been appointed as Collateral Agent hereunder pursuant to the Intercreditor Agreement by the Lender Agent and the current Other Permitted Credit Exposure Holders and, in the event that any Existing Senior Notes, future Other Permitted Credit Exposure, New Senior Debt, Interest Rate Obligations, Currency Obligations, Refinancing Senior Debt, or New Junior Debt are secured hereby, by each Other Permitted Credit Exposure Holder, New Senior Debt Representative, each Interest Rate Exchanger, each Currency Exchanger, each Refinancing Senior Debt Representative and each New Junior Debt Representative executing a counterpart to the Intercreditor Agreement or, in the case of Existing Senior Note Trustees, pursuant to the Existing Senior Note Supplemental Indentures, and the Collateral Agent shall be entitled to the benefits of the Intercreditor Agreement. The Collateral Agent shall be obligated, and shall have the right, hereunder to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking action (including, without limitation, the release or substitution of Pledged Collateral) solely in accordance with this Agreement and the Intercreditor Agreement. The Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided in the Intercreditor Agreement. Upon the acceptance of any appointment as a Collateral Agent by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent under this Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Agreement and shall deliver any Pledged Collateral in its possession to the successor Collateral Agent. After any retiring Collateral Agent's resignation, 18 the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Collateral Agent. Anything contained in this Agreement to the contrary notwithstanding, in the event of any conflict between the express terms and provisions of this Agreement and the express terms and provisions of the Intercreditor Agreement, such terms and provisions of the Intercreditor Agreement shall control. SECTION 16. INDEMNIFICATION. Each Pledgor hereby agrees to indemnify the Collateral Agent for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in any way relating to or arising out of this Agreement, the Intercreditor Agreement, the Credit Agreement, the Subsidiary Guaranty, the Interest Rate Agreements, the Currency Agreements, the Other Permitted Credit Exposure Documents, the Existing Senior Notes, the Existing Senior Note Indentures, any Existing Senior Notes Subordinated Guaranty, New Senior Debt Documents, Refinancing Senior Debt Documents or New Junior Debt Documents or any other documents contemplated by or referred to therein or the transactions contemplated thereby or the enforcement of any of the terms hereof or of any such other documents or otherwise arising or relating in any manner to the pledges, dispositions of Pledged Collateral or proceeds of Pledged Collateral, or other actions of any nature with respect to the Pledged Collateral contemplated hereunder and under the Intercreditor Agreement to secure the payment of the Secured Obligations; PROVIDED, however, that the Pledgor shall not be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Collateral Agent or failure by the Collateral Agent to exercise reasonable care in the custody and preservation of the Pledged Collateral as provided in SECTION 10. SECTION 17. AMENDMENTS, ETC. Prior to such time as all Senior Secured Obligations shall have been indefeasibly paid in full and the Credit Agreement has terminated and all Letters of Credit have been cancelled, this Agreement may not be amended, modified or waived except with the written consent of the Pledgors, the Collateral Agent and the Lender Agent and, solely with respect to an amendment of SECTION 12, the relative ranking or the priority of the security interests granted in SECTION 1, this SECTION 17, or the release of Pledged Collateral except as herein provided, with the written consent of each Interest Rate Exchanger (if the Pledged Collateral then secures such Interest Rate Exchanger), each Currency Exchanger (if the Pledged Collateral then secures such Currency Exchanger), Other Permitted Credit Exposure Holder (if the Pledged Collateral then secures such Other Permitted Credit Exposure), any New Senior Debt Representative (if the Pledged Collateral then secures the New Senior Debt), the Existing Senior Note Trustees (if the Pledged Collateral then secures the Existing Senior Notes) and any Refinancing Senior Debt Representative (if the Pledged Collateral then secures Refinancing Senior Debt), in each case to the extent such Secured Party is affected thereby in a manner adverse to such party; PROVIDED that the written consent of the Lender Agent shall not be required if the Obligations have been indefeasibly paid in full and the Credit Agreement has terminated and all Letters of Credit have been cancelled; PROVIDED, FURTHER, that if the Obligations have been indefeasibly paid in full and the Credit Agreement has terminated and all Letters of Credit have been cancelled, the written consent of the holders of a majority of the outstanding Interest Rate Obligations, Currency 19 Obligations and New Senior Debt which are secured by the Pledged Collateral shall be required to any amendment, modification or waiver of this Agreement; PROVIDED, FURTHER, during such time as the Pledged Collateral secures only the payment of the Second Priority Secured Obligations and Third Priority Secured Obligations, this Agreement may not be amended, modified or waived except with the written consent of the Pledgors, the Collateral Agent, the Existing Senior Note Trustees (if the Pledged Collateral then secures the Existing Senior Notes) and any Refinancing Senior Debt Representative (if the Pledged Collateral then secures Refinancing Senior Debt) and PROVIDED, further, that during such time as the Pledged Collateral secures only the payment of the Third Priority Secured Obligations, this Agreement may not be amended, modified or waived except with the written consent of the Pledgors, the Collateral Agent and any New Junior Debt Representative (if the Pledged Collateral then secures any New Junior Debt), PROVIDED, HOWEVER, that, notwithstanding the foregoing, no such written consent of any party (other than the Lender Agent) shall be required with respect to amendments, modifications or waivers necessary to permit the incurrence of additional Indebtedness (including any successor or replacement facility to the Credit Agreement) secured by the Pledged Collateral and entitled to the benefits hereof insofar as the foregoing is not prohibited by the applicable documents governing or evidencing the Secured Obligations, including without limitation any amendments, modifications or waivers for the purpose of adding appropriate references to additional parties in, and according such parties the benefits of, any of the provisions hereof and designating such parties as Senior Secured Parties (and the related obligations as Senior Secured Obligations), Second Priority Secured Parties (and the related obligations as Second Priority Secured Obligations) or Third Priority Secured Parties (and the related obligations as Third Priority Secured Obligations), as applicable, in connection with the incurrence of such indebtedness. SECTION 18. TERMINATION. Upon the earlier to occur of (a) payment in full in cash of all Senior Secured Obligations (excluding the Other Permitted Credit Exposure, Interest Rate Obligations and Currency Obligations and obligations under or in respect of the New Senior Debt Documents), the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, and upon the written election of Pledgors, (b) the first date on which the Pledged Collateral no longer secures the Obligations and upon written election of Pledgors, and (c) the achievement of the Threshold Debt Rating and acknowledgement of such ratings by Collateral Agent, the security interests granted hereby and this Agreement shall terminate and all rights to the Pledged Collateral shall revert to the applicable Pledgors, and the Collateral Agent shall, upon the request and at the expense of the Pledgors, forthwith assign, transfer and deliver, against receipt and without recourse to the Collateral Agent, such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof to or on the order of the Pledgors. Notwithstanding anything herein (including SECTION 20) to the contrary, if all the Obligations have either been paid in full in cash or are no longer secured by any of the Pledged Collateral, this Agreement shall be terminable at the election of the Pledgors and upon the delivery of written notice of such election to the Collateral Agent, this Agreement shall terminate and the Collateral Agent shall, at the expense of the Pledgors, forthwith assign, transfer and deliver against receipt and without recourse to the Collateral Agent, such Pledged Collateral as 20 shall not have been sold or otherwise applied pursuant to the terms hereof to or on the order of the Pledgors. SECTION 19. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telegraphic or telecopy communication) and mailed, telegraphed, telecopied or delivered, if to a Pledgor, addressed to it at the address set forth on the signature page of this Agreement, if to the Collateral Agent, addressed to it at the address set forth on the signature page of this Agreement, if to the Lender Agent, addressed to it at the address set forth on the signature page of the Credit Agreement, or as to any party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this SECTION 19. All such notices and other communications shall be effective when received. SECTION 20. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES. Subject to SECTION 18, this Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until indefeasible payment in full in cash of all Secured Obligations, (ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and each other Secured Party and each of their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii) and subject to the provisions of subsections 10.2 and 10.17 of the Credit Agreement, any Secured Party may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Secured Party herein or otherwise, subject, however, to the provisions of the Intercreditor Agreement. SECTION 21. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE CODE REQUIRES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms defined in Articles 8 and 9 of the Code are used herein as therein defined. SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial proceedings brought against either Pledgor with respect to this Agreement may be brought in any state or federal court of competent jurisdiction in the State of 21 New York and by execution and delivery of this Agreement, each Pledgor accepts for itself and in connection with its properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The Pledgors designate and appoint C T Corporation System, The Corporation Trust Company, 1633 Broadway, New York, New York 10019 and such other Persons as may hereafter be selected by the Pledgors, irrevocably agreeing in writing to so serve, as its agent to receive on its behalf service of all process in any such proceedings in any such court, such service being hereby acknowledged by each Pledgor to be effective and binding service in every respect. A copy of any such process so served shall be mailed by registered mail to the Pledgors at their addresses referred to in SECTION 19, except that unless otherwise provided by applicable law, any failure to mail such copy shall not affect the validity of service of process. If any agent appointed by the Pledgors refuses to accept service, each Pledgor hereby agrees that service upon it by mail shall constitute sufficient notice. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Collateral Agent to bring proceedings against a Pledgor in the courts of any other jurisdiction. SECTION 23. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent and security interests hereunder, and all obligations of the Pledgors, hereunder shall be absolute and unconditional irrespective of, and Pledgors hereby waive any and all defenses that they may now or in the future have arising out of: (a) any lack of validity or enforceability of any of the Credit Agreement, any Interest Rate Agreement, any Currency Agreement, any Other Permitted Credit Exposure Guaranty, any of the Existing Senior Notes, any Existing Senior Notes Indenture, the Existing Senior Notes Subordinated Guaranty, any New Senior Debt Document, any Refinancing Senior Debt Document, any New Junior Debt Document, or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any of the Credit Agreement, Subsidiary Guaranty, any Interest Rate Agreement, any Currency Agreement, any Other Permitted Credit Exposure Document, the Existing Senior Note, any Existing Senior Note Indenture, any Existing Senior Notes Subordinated Guaranty, any New Senior Debt Document, any Refinancing Senior Debt Document, or any New Junior Debt Document; (c) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guaranty, for all or any of the Secured Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, either Pledgor. 22 SECTION 24. WAIVER OF JURY TRIAL. EACH PLEDGOR AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Pledgor and Collateral Agent acknowledge that this waiver is a material inducement for each Pledgor and Collateral Agent to enter into a business relationship, that each Pledgor and Collateral Agent have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Each Pledgor and Collateral Agent further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 24 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 25. Counterparts. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [Remainder of page intentionally left blank] 23 IN WITNESS WHEREOF, the Pledgors have caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. PLEDGOR OWENS-ILLINOIS GROUP, INC. By /s/ Jeffrey A. Denker ---------------------------------- Title Assistant Treasurer ------------------------------- Notice Address: One Seagate Toledo, Ohio 43666 Attention: Treasurer PLEDGOR OWENS BROCKWAY PACKAGING INC. By /s/ Jeffrey A. Denker ---------------------------------- Title Assistant Treasurer ------------------------------- Notice Address: One Seagate Toledo, Ohio 43666 Attention: Treasurer S-1 IN WITNESS WHEREOF, Collateral Agent has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. COLLATERAL AGENT BANKERS TRUST COMPANY By /s/ Mary Jo Jolly ---------------------------------- Title Assistant Vice President -------------------------------- Notice Address: Bankers Trust Company 130 Liberty Street, 14th Floor New York, New York 10006 Attention: Mary Jo Jolly with a copy to: Bankers Trust Company 300 South Grand Avenue, 41st Floor Los Angeles, California 90071 Attention: Robert G. Kolb S-2 EX-4.4 6 a2063263zex-4_4.txt EXHIBIT 4.4 EXHIBIT 4.4 INTERCREDITOR AGREEMENT This INTERCREDITOR AGREEMENT (as amended, amended and restated or otherwise modified from time to time in accordance with the terms hereof, herein called this "AGREEMENT") is dated as of April 23, 2001 among BANKERS TRUST COMPANY ("BANKERS"), as administrative agent (the "LENDER AGENT") for the lenders (the "LENDERS") party to the Credit Agreement (as hereinafter defined), BANKERS TRUST COMPANY, as Collateral Agent (as hereinafter defined), and the other persons who may become parties to this Agreement from time to time pursuant to and in accordance with SECTION 6 of this Agreement. Initially capitalized terms used herein without definition are defined in the Credit Agreement (as hereinafter defined). R E C I T A L S 1. The Lenders and the Lender Agent have entered into a Secured Credit Agreement dated as of April 23, 2001 with the Borrowers named therein, Owens-Illinois Group, Inc., a Delaware corporation ("COMPANY"), and Owens-Illinois General, Inc., as Borrowers' Agent (as amended, amended and restated or otherwise modified from time to time, the "CREDIT AGREEMENT", which term shall also include and refer to any successor or replacement facility of Company or its Subsidiaries designated in writing as such by Borrowers' Agent with Collateral Agents' consent and acknowledgement of the termination of the predecessor Credit Agreement by an agent for the lenders thereunder). 2. Company has guarantied the Obligations of the Borrowers under the Credit Agreement as well as certain Other Permitted Credit Exposure, Interest Rate Obligations and Currency Obligations (each defined below) pursuant to Section 9 of the Credit Agreement (the "COMPANY GUARANTY"). 3. (i) Each of the Domestic Borrowers have guaranteed (A) all Loans made to, and other Obligations of, the other Domestic Borrowers, (B) all Offshore Loans made to, and other Obligations of, the Offshore Borrowers and (C) Other Permitted Credit Exposure, (ii) OI Plastics and OI Closure have guaranteed the Term Loans made to, and related Obligations of, Owens Brockway and OI General FTS, and (iii) OI General FTS has guaranteed the Revolving Loans made to, and related obligations of, Owens Brockway, OI Plastics and OI Closure, in each case pursuant to a certain Domestic Borrowers' Guaranty dated April 23, 2001 (as amended, amended and restated or otherwise modified from time to time, the "DOMESTIC BORROWERS' GUARANTY"). 4. Owens Brockway Packaging, Inc., a Delaware corporation ("PACKAGING") and the other Subsidiary Guarantors have guarantied the Obligations of the Borrowers under the Credit Agreement as well as certain Other Permitted Credit Exposure, Interest Rate Obligations and Currency Obligations pursuant to a certain Loan Guaranty dated April 23, 2001 (as amended, amended and restated or otherwise modified from time to time, the "SUBSIDIARY GUARANTY"). 5. Company and Packaging (collectively, the "PLEDGORS") have executed and delivered to the Collateral Agent a Pledge Agreement dated as of April 23, 2001 (as amended, amended and restated or otherwise modified from time to time, the "PLEDGE AGREEMENT"; a copy of the 1 Pledge Agreement as in effect on the date this Agreement becomes effective is attached to this Agreement as ANNEX 1). 6. Domestic Borrowers, Company, and the Subsidiary Guarantors, including Packaging, identified on Schedule 1.1B annexed to the Credit Agreement have executed and delivered to the Collateral Agent a Security Agreement dated as of April 23, 2001 (as amended, amended and restated or otherwise modified from time to time, the "SECURITY AGREEMENT"; a copy of the Security Agreement as in effect on the date this Agreement becomes effective is attached to this Agreement as ANNEX 2). 7. Certain of the Domestic Borrowers and the Subsidiary Guarantors may execute and deliver pursuant to the terms of the Credit Agreement, the Initial Mortgages and shall from time to time pursuant to the terms of the Credit Agreement execute and deliver Additional Mortgages, in each case securing a Real Property Asset owned by such Domestic Borrower or Subsidiary Guarantor (the Initial Mortgages and the Additional Mortgages are referred to herein as the "MORTGAGES"). The Pledge Agreement, the Security Agreement and the Mortgages are collectively referred to herein as the "COLLATERAL Documents". All collateral pledged or secured by the Collateral Documents is collectively referred to herein as the "DOMESTIC COLLATERAL". 8. (a) The obligations of Company under the Credit Agreement and Packaging under the Subsidiary Guaranty have been secured by certain Pledged Shares and Pledged Debt on a senior basis pursuant to the Pledge Agreement, (b) the obligations of the Domestic Borrowers under the Credit Agreement, Company under the Company Guaranty and Subsidiary Guarantors under the Subsidiary Guaranty have been secured by certain Pledged Shares and Pledged Debt and other Domestic Collateral on a senior basis pursuant to the Security Agreement and (c) the obligations of certain Subsidiary Guarantors under the Subsidiary Guaranty have been secured on a senior basis pursuant to the Mortgages. 9. Owens-Illinois, Inc., a Delaware corporation ("HOLDINGS"), and certain trustees (each an "EXISTING SENIOR NOTE TRUSTEE" and collectively, the "EXISTING SENIOR NOTE TRUSTEES") have entered into the Indentures dated as of May 15, 1997 and May 20, 1998 (each as amended, supplemented or otherwise modified from time to time, an "EXISTING SENIOR NOTE INDENTURE" and collectively, the "EXISTING SENIOR NOTE INDENTURES") pursuant to which Holdings has issued the following senior notes and debentures (collectively, the "EXISTING SENIOR NOTES"): (i) the 7.85% Senior Notes due 2004 in the aggregate principal amount of $300,000,000; (ii) the 7.15% Senior Notes due 2005 in the aggregate principal amount of $350,000,000; (iii) the 8.10% Senior Notes due 2007 in the aggregate principal amount of $300,000,000; (iv) the 7.35% Senior Notes due 2008 in the aggregate principal amount of $250,000,000; (v) the 7.50% Senior Debentures due 2010 in the aggregate principal amount of $250,000,000; and (vi) the 7.80% Senior Debentures due 2018 in the aggregate principal amount of $250,000,000. 10. If the Supplemental Indenture Condition (as hereinafter defined) has been satisfied, the Company and Packaging may guaranty the obligations of Holdings under the Existing Senior Note Indentures and the Existing Senior Notes issued thereunder pursuant to subordinated guaranties (the "EXISTING SENIOR NOTES SUBORDINATED GUARANTY"). 2 11. It is contemplated that, from time to time Subsidiaries and Joint Ventures of Company may incur obligations to Lenders or affiliates of Lenders arising out of loans, advances, overdrafts, interest rate, currency or hedge products and other derivative exposures or other extensions of credit to the extent permitted under the Credit Agreement ("OTHER PERMITTED CREDIT Exposure"). Company has guaranteed such Other Permitted Credit Exposure pursuant to the Company Guaranty, the Domestic Borrowers have guaranteed such other Permitted Credit Exposure pursuant to the Domestic Borrowers' Guaranty and the Subsidiary Guarantors have guaranteed such Other Permitted Credit Exposure pursuant to the Subsidiary Guaranty. Each holder of such Other Permitted Credit Exposure is referred to herein as an "OTHER PERMITTED CREDIT EXPOSURE HOLDER" and, collectively, all such holders are referred to as the "OTHER PERMITTED CREDIT EXPOSURE HOLDERS". Notwithstanding the foregoing, an Other Permitted Credit Exposure Holder may only receive the benefit of the Loan Guaranties and may only be secured by the Domestic Collateral pursuant to the Collateral Documents if (a) such Other Permitted Credit Exposure Holder delivers to the Collateral Agent a duly executed acknowledgment to this Agreement (in the form attached hereto) agreeing to be bound by the terms hereof, (b) the Borrowers' Agent has duly executed and delivered an acknowledgement to such acknowledgement, (c) pursuant to Section 9 of the Credit Agreement, such holder remains a Lender or an Affiliate of a Lender under the Credit Agreement and (d) and such Other Permitted Credit Exposure Holder shall have released and terminated any guaranty by Holdings of Other Permitted Credit Exposure. 12. Company, Domestic Borrowers and Subsidiary Guarantors (collectively, the "LOAN GUARANTORS") have entered into and/or will enter into from time to time (i) the Company Guaranty, (ii) the Domestic Borrowers' Guaranty and (iii) the Subsidiary Guaranty, respectively (collectively, the "LOAN GUARANTIES"). 13. It is contemplated that, from time to time to the extent permitted by the Credit Agreement, Company, Packaging, Domestic Borrowers and/or the other Subsidiary Guarantors may issue or guaranty certain New Senior Debt (any indenture, debenture, note, guaranty or other document executed by Company, Packaging and or any other Subsidiary Guarantor in connection with the issuance of any such New Senior Debt is referred to herein as a "NEW SENIOR DEBT DOCUMENT" individually and the "NEW SENIOR DEBT DOCUMENTS" collectively and any trustee or like representative of the holders of any such New Senior Debt is referred to herein as a "NEW SENIOR DEBT REPRESENTATIVE"), which New Senior Debt Documents may be secured by the Domestic Collateral pursuant to the Collateral Documents; PROVIDED, THAT, for any holder of any New Senior Debt to receive the benefit of such security it shall cause a New Senior Debt Representative for such New Senior Debt to execute and deliver to the Collateral Agent an acknowledgment to this Agreement (in the form attached hereto) agreeing to be bound by the terms hereof (which acknowledgment shall be acknowledged by the Borrower's Agent). 14. It is contemplated that, from time to time to the extent permitted by the Credit Agreement, Holdings, may issue on a senior basis, and Company and/or Packaging may issue or guaranty, on a subordinated basis, certain Refinancing Senior Debt. Any indenture, debenture, note, guaranty or other document executed by Holdings, Company or Packaging in connection with the issuance of any such Refinancing Senior Debt is referred to herein as a "REFINANCING SENIOR DEBT DOCUMENT" individually and the "REFINANCING SENIOR DEBT DOCUMENTS" collectively, and any trustee or like representative of the holders of any such Refinancing Senior 3 Debt is referred to herein as a "REFINANCING SENIOR DEBT REPRESENTATIVE"). Refinancing Senior Debt Documents may be secured, on a subordinated basis, by the Domestic Collateral pursuant to the Pledge Agreement (but neither the Security Agreement nor the Mortgages or any other Collateral Documents); PROVIDED, THAT, for any holder of any Refinancing Senior Debt to receive the benefit of such security it shall cause a Refinancing Senior Debt Representative for such issue to execute and deliver to the Collateral Agent an acknowledgment to this Agreement (in the form attached hereto) agreeing to be bound by the terms hereof (which acknowledgment shall be acknowledged by the Borrowers' Agent). 15. It is contemplated that, from time to time to the extent permitted by the Credit Agreement, Holdings, Company and/or Packaging may issue or guaranty, on a subordinated basis, New Junior Debt. Any indenture, debenture, note, guaranty or other document executed by Holdings, Company or Packaging in connection with the issuance of any such New Junior Debt is referred to herein as a "NEW JUNIOR DEBT DOCUMENT" individually and the "NEW JUNIOR DEBT DOCUMENTS" collectively. Any trustee or like representative of the holders of any New Junior Debt is referred to herein as a "NEW JUNIOR DEBT REPRESENTATIVE". New Junior Debt Documents may be secured, on a subordinated basis, by the Domestic Collateral pursuant to the Pledge Agreement (but not the Security Agreement or the Mortgages or any other Collateral Documents); PROVIDED, THAT, for any holder of any New Junior Debt to receive the benefit of such security it shall cause a New Junior Debt Representative for such issue to execute and deliver to the Collateral Agent an acknowledgment to this Agreement (in the form attached hereto) agreeing to be bound by the terms hereof (which acknowledgment shall be acknowledged by the Borrowers' Agent). 16. It is contemplated that Company or its Subsidiaries may from time to time assume from Holdings or enter into one or more Interest Rate Agreements with one or more Lenders or their respective affiliates (collectively, the "INTEREST RATE EXCHANGERS") and it is desired that the obligations of Company or its Subsidiaries under such Interest Rate Agreements, including the obligation to make payments in the event of early termination thereunder (all such obligations being the "INTEREST RATE OBLIGATIONS"), be secured by the Domestic Collateral pursuant to the Collateral Documents; PROVIDED, THAT, for any Interest Rate Exchanger to receive the benefit of such security and the Loan Guaranties (a) it shall execute and deliver to the Collateral Agent an acknowledgment to this Agreement (in the form attached hereto) agreeing to be bound by the terms hereof (which acknowledgment shall be acknowledged by the Borrowers' Agent) and (b) pursuant to Section 9 of the Credit Agreement, such Interest Rate Exchanger remains a Lender or an Affiliate of a Lender under the Credit Agreement. 17. It is contemplated that Company or its Subsidiaries may from time to time assume from Holdings or enter into one or more Currency Agreements with one or more Lenders or their respective Affiliates (collectively, the "CURRENCY EXCHANGERS") and it is desired that the obligations of Company or its Subsidiaries under such Currency Agreements, including the obligation to make payments in the event of early termination thereunder (all such obligations being the "CURRENCY OBLIGATIONS"), be secured by the Domestic Collateral pursuant to the Collateral Documents; PROVIDED, THAT, for any Currency Exchanger desiring the benefit of such security and the Loan Guaranties (a) it shall execute and deliver to the Collateral Agent an acknowledgment to this Agreement (in the form attached hereto) agreeing to be bound by the terms hereof (which acknowledgment shall be acknowledged by the Borrowers' Agent) and 4 (b) pursuant to Section 9 of the Credit Agreement, such Currency Exchanger remains a Lender or an Affiliate of a Lender under the Credit Agreement. 18. (a) The Lender Agent and the current Other Permitted Credit Exposure Holders named on the signature pages hereof, (b) and in the event any Interest Rate Obligations are to be secured by the Collateral Documents, the Interest Rate Exchanger party to the relevant Interest Rate Agreement, (c) and in the event any Currency Obligations are to be secured by the Collateral Documents, the Currency Exchanger party to the relevant Currency Agreement, (d) and in the event any obligations in respect of any New Senior Debt are to be secured by the Collateral Documents, the New Senior Debt Representative in respect of such New Senior Debt, (e) and in the event any obligations in respect of any Refinancing Senior Debt are to be secured by the Pledge Agreement, the Refinancing Senior Debt Representative in respect to such Refinancing Senior Debt, (f) and in the event any obligations in respect of any New Junior Debt are to be secured by the Pledge Agreement, the New Junior Debt Representative in respect of such New Junior Debt, and (g) in the event the Supplemental Indenture Condition has been satisfied, the Existing Senior Note Trustees in respect of such Existing Senior Notes and the Collateral Agent (collectively, the "SECURED PARTIES") desire to set forth certain additional provisions regarding the appointment, duties and responsibilities of the Collateral Agent and to set forth certain other provisions concerning the obligations of the Pledgors, Borrowers and the other Subsidiary Guarantors (collectively, the "GRANTORS") and the Loan Guarantors to the Secured Parties under the agreements referred to in the foregoing recitals. "SUPPLEMENTAL INDENTURE CONDITION" means the Existing Senior Notes Trustees and Holdings, the Company and Packaging have executed and delivered one or more supplemental indentures which effect amendments to the Existing Senior Notes Indentures with respect to each series of Existing Senior Notes to provide for the Existing Senior Notes Subordinated Guaranty and certain terms and conditions relating to the Domestic Collateral, which supplemental indentures shall be in form and substance satisfactory to and approved by the Agents. 19. The Secured Parties wish to set forth their agreement as to the allocation of certain payments to be made from Net Asset Sale Proceeds of Domestic Collateral and Net Insurance/Condemnation Proceeds or Net Debt Securities Proceeds arising from the issuance of Receivables Sale Indebtedness arising therefrom. 20. The Secured Parties wish to set forth their agreement as to decisions relating to the exercise of remedies under the Loan Guaranties and the Collateral Documents and certain limitations on the exercise of such remedies. 21. The Secured Parties wish to confirm their agreement that (a) in no event shall either the Second Priority Secured Obligations (as defined in the Pledge Agreement) or the Third Priority Secured Obligations (as defined in the Pledge Agreement), be secured by or have any rights with respect to the Domestic Collateral under the Security Agreement or any Mortgage or any other Collateral Document (other than the Pledge Agreement) or benefit from or have any rights with respect to the Loan Guaranties, (b) certain remedies under the Pledge Agreement shall not be taken for the benefit of Second Priority Secured Obligations unless such remedies are concurrently being exercised for the benefit of Senior Secured Obligations (as defined in the Pledge Agreement), or unless all such Senior Secured Obligations have been paid in full in cash and all Commitments and Letters of Credit have terminated and (c) certain remedies under the 5 Pledge Agreement shall not be taken for the benefit of any Third Priority Secured Obligations unless such remedies are being concurrently exercised for the benefit of the Senior Secured Obligations and the Second Priority Secured Obligations or unless all such Senior Secured Obligations and/or Second Priority Secured Obligations have been paid in full in cash and all Commitments and Letters of Credit have terminated. 22. The Secured Parties wish to confirm that certain subordination provisions granting benefits to the holders of certain senior indebtedness shall not be impaired by the granting of security interests in collateral, or the exercise of rights with respect to such collateral, in favor of the holders of certain junior indebtedness. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. APPOINTMENT AS COLLATERAL AGENT. The Lender Agent and each Other Permitted Credit Exposure Holder listed on the signature pages hereof each hereby appoints, and each Interest Rate Exchanger, Currency Exchanger, New Senior Debt Representative, Refinancing Senior Debt Representative and New Junior Debt Representative signing, an acknowledgment hereto, by such signing and each Existing Senior Note Trustee by signing an acknowledgement hereto or pursuant to an Existing Senior Note Supplemental Indenture, by such signing or pursuant to such indenture, appoints Bankers Trust Company to serve as collateral agent and representative of each such Secured Party under each of the Collateral Documents and the Loan Guaranties (in such capacity, together with its successors in such capacity, the "COLLATERAL AGENT") and authorizes the Collateral Agent to act as agent for the Secured Parties for the purpose of executing and delivering, on behalf of all such Secured Parties, the Pledge Agreement and, on behalf of the Lender Agent, the Other Permitted Credit Exposure Holders, the Interest Rate Exchangers, the Currency Exchangers, the New Senior Debt Representatives (the "SENIOR SECURED Parties") and the Existing Senior Note Trustees, the Security Agreement, the Mortgages, the Loan Guaranties (as applicable) and any other documents or instruments related thereto or necessary to perfect the same and, subject to the provisions of this Agreement, for the purpose of enforcing the Secured Parties' rights in respect of the Domestic Collateral and the obligations of the Grantors under the Collateral Documents and obligations of the Loan Guarantors under the Loan Guaranties. SECTION 2. DECISIONS RELATING TO EXERCISE OF REMEDIES VESTED IN REQUISITE OBLIGEES UNDER THE CREDIT AGREEMENT, INTEREST RATE AGREEMENTS, CURRENCY AGREEMENTS, OTHER PERMITTED CREDIT EXPOSURE GUARANTIES, NEW SENIOR DEBT DOCUMENTS, EXISTING SENIOR NOTE INDENTURES, REFINANCING SENIOR DEBT DOCUMENTS, NEW JUNIOR DEBT DOCUMENTS, COLLATERAL DOCUMENTS AND LOAN GUARANTIES. (a) The Collateral Agent agrees to make such demands and give such notices under the Loan Guaranties and the Collateral Documents as Requisite Obligees may request, and to take such action to enforce the Loan Guaranties and the Collateral Agreements and to foreclose upon, collect and dispose of the Domestic Collateral or any portion thereof as may be directed by Requisite Obligees. For purposes of this Agreement, (i) "REQUISITE OBLIGEES" means, for purposes of directing the Collateral Agent with respect to any of the foregoing actions to be taken pursuant to any of the Collateral Documents or the Loan Guaranties, Lenders holding 51% or more of the aggregate principal amount of the sum of (A) all Loans outstanding, (B) all 6 other credit facilities utilized (including the stated amount of all Letters of Credit, Domestic and Offshore Overdraft Amounts and the face amount of all unmatured discounted bankers' acceptances, if any) under the Credit Agreement and (C) all unused Commitments under the Credit Agreement (ii) provided, that, if the Obligations (such term being used herein as defined in the Credit Agreement) have been indefeasibly paid in full in cash and the Credit Agreement and Letters of Credit have terminated, "REQUISITE OBLIGEES" shall mean (1) Secured Parties holding 51% or more of the aggregate amount of the sum of (A) the principal amount of the Other Permitted Credit Exposure then secured by Domestic Collateral, (B) 20% of the notional amount under all Interest Rate Agreements and Currency Agreements or, if an Interest Rate Agreement or Currency Agreement has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Interest Rate Agreement or Currency Agreement, as the case may be, and (C) in the case of the Collateral Documents only (and NOT the Loan Guaranties) the aggregate outstanding principal amount of the New Senior Debt (to the extent such New Senior Debt is then secured by the Domestic Collateral under the Collateral Documents), until indefeasible payment in full in cash of all Other Permitted Credit Exposure secured by the Domestic Collateral, Interest Rate Obligations, the Currency Obligations, and all New Senior Debt, secured by the Domestic Collateral under the Collateral Documents, (2) and, thereafter, for purposes of directing the Collateral Agent with respect to any of the foregoing actions to be taken under or in respect of the Pledge Agreement only (and NOT any Loan Guaranty, the Security Agreement, or any Mortgage), Secured Parties holding or representing 51% or more of the aggregate amount of the sum of (A) the aggregate outstanding principal amount of the Existing Senior Notes (only if the Supplemental Indenture Condition has been satisfied) and (B) the aggregate outstanding principal amount of Refinancing Senior Debt (to the extent such Refinancing Senior Debt is then secured by Domestic Collateral) until indefeasible payment in full in cash of such Refinancing Senior Debt and (only if the Supplemental Indenture Condition has been satisfied) the Existing Senior Notes and (3) thereafter, for purposes of directing the Collateral Agent with respect to any of the foregoing actions to be taken under or in respect of the Pledge Agreement only (and NOT any Loan Guaranty, the Security Agreement or any Mortgage), Secured Parties holding or representing 51% or more of the aggregate outstanding principal amount of New Junior Debt (to the extent such New Junior Debt is then secured by Domestic Collateral) until indefeasible payment in full in cash of such New Junior Debt. The Collateral Agent shall not be required to take any action that is, in its opinion, contrary to law or to the terms of this Agreement, or any of the Collateral Documents or any of the Loan Guaranties or which would in its opinion subject it or any of its officers, employees or directors to liability, and the Collateral Agent shall not be required to take any action under this Agreement or any of the Collateral Documents or any of the Loan Guaranties, unless and until the Collateral Agent shall be indemnified to its satisfaction by the Secured Parties against any and all losses, costs, expenses or liabilities in connection therewith. (b) Each Secured Party executing this Agreement or an acknowledgment hereto agrees that (i) the Collateral Agent may act as Requisite Obligees may request (regardless of whether any Secured Party or any holder represented thereby agrees, disagrees or abstains with respect to such request), (ii) the Collateral Agent shall have no liability for acting in accordance with such request (provided such action does not conflict with the express terms of this Agreement) and (iii) no Secured Party or any holder represented thereby shall have any liability to any other Secured Party or any holder represented thereby for any such request. The 7 Collateral Agent shall give prompt notice to all Secured Parties of actions taken pursuant to the instructions of Requisite Obligees; PROVIDED, HOWEVER, that the failure to give any such notice shall not impair the right of the Collateral Agent to take any such action or the validity or enforceability under this Agreement or the applicable Collateral Document or Loan Guaranties of the action so taken. (c) Each Secured Party agrees that unless and until such Secured Party is entitled to give direction to the Collateral Agent pursuant to SECTION 2(A) with respect to a Collateral Document or the Loan Guaranties, the only right of such Secured Party under the Collateral Documents and the Loan Guaranties is for (i) Other Permitted Credit Exposure, the Interest Rate Obligations, the Currency Obligations, and the New Senior Debt (collectively, with the Obligations under the Credit Agreement, the "SENIOR SECURED OBLIGATIONS") to be secured by the Domestic Collateral, and to receive a share of the proceeds of such Domestic Collateral or any payments under the Loan Guaranties, if any, as and when provided in the Collateral Documents and SECTION 3 and SECTION 4(A) hereof, (ii) the Refinancing Senior Debt and (only if the Supplemental Indenture Condition has been satisfied) the Existing Senior Notes to be secured by the Domestic Collateral pledged under the Pledge Agreement (the "SECOND PRIORITY SECURED OBLIGATIONS"), in each case for the period and to the extent (but only to the extent) provided for in the Pledge Agreement and to receive a share of the proceeds of such Domestic Collateral, if any, as and when provided in Section 12 of the Pledge Agreement and SECTION 3 and SECTION 4(A) hereof, and (iii) the New Junior Debt to be secured by the Domestic Collateral pledged under the Pledge Agreement (the "THIRD PRIORITY SECURED OBLIGATIONS") for the period and to the extent (but only to the extent) provided for in the Pledge Agreement and to receive a share of the proceeds of such Domestic Collateral, if any, to the extent and at the times provided in Section 12 of the Pledge Agreement and SECTION 3 and SECTION 4(A) hereof. The Secured Parties that are not Senior Secured Parties and the New Senior Debt Representatives acknowledge that they have no rights or remedies under or with respect to any of the Loan Guaranties. (d) Notwithstanding anything to the contrary contained herein or in the Credit Agreement, any Other Permitted Credit Exposure Document, any Interest Rate Agreement, any Currency Agreement, any Existing Senior Note Indenture (only if the Supplemental Indenture Condition has been satisfied), any Existing Senior Notes Subordinated Guaranty (if applicable), any New Senior Debt Document, any Refinancing Senior Debt Document or any New Junior Debt Document, and irrespective of (i) the time, order or method of attachment or perfection of the security interests created by any Collateral Document, (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any Domestic Collateral, and (iii) the rules for determining priority under the Uniform Commercial Code or any other law or rule governing the relative priorities of secured creditors, any security interest in any Domestic Collateral heretofore or hereafter granted to secure any Senior Secured Obligations pursuant to any Collateral Document or otherwise has and shall have 8 priority, to the extent of any unpaid Senior Secured Obligations, over any security interest in such Domestic Collateral granted to secure any Second Priority Secured Obligations or any Third Priority Secured Obligations and any security interest in any Domestic Collateral heretofore or hereafter granted to secure any Second Priority Secured Obligations pursuant to the Pledge Agreement or otherwise has and shall have priority, to the extent of any unpaid Second Priority Secured Obligations, over any security interest in such Domestic Collateral granted to secure any Third Priority Secured Obligations. (e) The Collateral Agent may at any time request directions from the Requisite Obligees with respect to the Collateral Documents and the Loan Guaranties as to any course of action or other matter relating hereto or to any Collateral Document or any Loan Guaranties. Except as otherwise provided in the Collateral Documents and the Loan Guaranties, directions given by Requisite Obligees to the Collateral Agent hereunder shall be binding on all Secured Parties for all purposes. (f) Subject to the application of proceeds pursuant to SECTION 4, Collateral Agent may release the Lien of the Collateral Documents against any portion of the Domestic Collateral that is the subject of a sale, transfer or other disposition permitted by the Credit Agreement or otherwise to the extent approved by the Requisite Obligees. (g) Each Secured Party agrees that no Secured Party shall have any right to, and agrees that it shall not take any action whatsoever to enforce any term or provision of any Collateral Document or any Loan Guaranties or to enforce any of its rights in respect of the Domestic Collateral, it being understood that all rights and remedies under the Collateral Documents and the Loan Guaranties shall be executed exclusively by the Collateral Agent in accordance with this Agreement. Without limiting any of the foregoing, each Secured Party agrees that so long as any of the Senior Secured Obligations have not been indefeasibly paid in full in cash, in any case under the Bankruptcy Code with respect to a Loan Party, holders of any Existing Senior Notes (only if the Supplemental Indenture Condition has been satisfied), Refinancing Senior Debt or New Junior Debt and their respective trustees or representatives, (i) shall not contest any request by the Lender Agent for adequate protection or relief from the automatic stay and (ii) shall waive any rights to (A) seek relief from the automatic stay, (B) object to any election by the holders of Senior Secured Obligations of the application of Section 1111(b) of the Bankruptcy Code or (C) to object to a borrowing or grant of security interest by any Grantor pursuant to Section 364 of the Bankruptcy Code. SECTION 3. APPLICATION OF PROCEEDS OF SECURITY, LOAN GUARANTY PAYMENTS. (a) Subject to the provisions of SECTION 4 which shall govern with respect to the allocation of Net Asset Sale Proceeds of Domestic Collateral or Net Insurance/Condemnation Proceeds arising therefrom or Net Debt Securities Proceeds arising from the issuance of Receivables Sales Indebtedness, any and all amounts actually received by the Collateral Agent in connection with the enforcement of the Collateral Documents, including the proceeds of any collection, sale or other disposition of the Domestic Collateral or any portion thereof (collectively, "PROCEEDS") shall be applied promptly by the Collateral Agent as follows: 9 (i) Proceeds of Domestic Collateral under the Pledge Agreement shall be applied as follows: FIRST, to the payment of the costs and expenses of such sale, collection or other realization, including reasonable compensation to the Collateral Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith and all amounts for which Collateral Agent is entitled to indemnification hereunder and all advances hereunder for the account of Grantors, and to the payment of all costs and expenses paid or incurred by Collateral Agent in connection with the exercise of any right or remedy hereunder; SECOND, to the payment of the Senior Secured Obligations (including any Aggregate Available Amount (as defined in the Security Agreement) deposits into the L/C Collateral Account for outstanding Letters of Credit, provided that if such Letters of Credit expire without being fully drawn, then at that time, such excess amounts shall be applied as provided in this SECTION 3 to then outstanding Senior Secured Obligations) for the ratable benefit of the holders thereof; PROVIDED that in making such application in respect of outstanding obligations under New Senior Debt Documents, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the New Senior Debt Representatives the New Senior Debt holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties (as defined in SECTION 7(c)) pursuant to SECTION 7(c); THIRD, only after payment in full of all Senior Secured Obligations and the Credit Agreement has terminated and the Letters of Credit cancelled, to the payment of the Second Priority Secured Obligations for the ratable benefit of the holders thereof; PROVIDED, THAT, that in making such application in respect of outstanding obligations under the Existing Senior Notes, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the holders of the Existing Senior Notes (if the Supplemental Indenture Condition has been satisfied), such holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties pursuant to SECTION 7(c), PROVIDED, FURTHER, that in making such application in respect of obligations outstanding under Refinancing Senior Debt Documents, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the holders of such Refinancing Senior Debt Representatives such Refinancing Senior Debt holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties pursuant to SECTION 7(c); FOURTH, only after payment in full of all Senior Secured Obligations and all Second Priority Secured Obligations, to the payment of the Third Priority Secured Obligations for the ratable benefit of the holders thereof; PROVIDED, THAT, in making such application in respect of obligations outstanding under New Junior Debt Documents, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the holders of such New Junior Debt such New Junior Debt holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties pursuant to SECTION 7(c); and 10 FIFTH, after payment in full of all Secured Obligations, to applicable Pledgor, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such Proceeds. (ii) Proceeds of Domestic Collateral pledged pursuant to the Security Agreement or any Mortgage shall be applied as follows: FIRST, to the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to Collateral Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith, and all amounts for which Collateral Agent is entitled to indemnification hereunder and all advances made by Collateral Agent hereunder for the account of Grantors, and to the payment of all costs and expenses paid or incurred by Collateral Agent in connection with the exercise of any right or remedy hereunder; SECOND, to the ratable payment of all other Senior Secured Obligations (including any Aggregate Available Amount (as defined in the Security Agreement) deposits into the L/C Collateral Account for outstanding Letters of Credit, provided that if such Letters of Credit expire without being fully drawn, then at that time, such excess amounts shall be applied as provided in this SECTION 3 to then outstanding Senior Secured Obligations) secured by the Security Agreement and the Mortgages (for the ratable benefit of the holders thereof) and, as to obligations arising under the Credit Agreement, as provided in the Credit Agreement; PROVIDED that in making such application in respect of outstanding obligations under New Senior Debt Documents, the Collateral Agent shall be entitled to deduct from the share of such Proceeds otherwise payable to the New Senior Debt Representatives the New Senior Debt holders' pro rata share of all amounts that the Collateral Agent has been paid by the Paying Indemnifying Parties pursuant to SECTION 7(c); and THIRD, to the payment to or upon the order of the applicable Grantor, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. Until Proceeds are so applied, the Collateral Agent shall hold such Proceeds in its custody in accordance with its regular procedures for handling deposited funds. (iii) Any and all amounts actually received by the Collateral Agent in connection with the enforcement of the Loan Guaranties (collectively, "LOAN GUARANTY PAYMENTS") shall be applied as follows: FIRST, to the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to Collateral Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith, and all amounts for which Collateral Agent is entitled to indemnification hereunder and all advances made by Collateral Agent hereunder for the account of Loan Guarantors, and to the payment of all costs and expenses paid or incurred by Collateral Agent in connection with the exercise of any right or remedy hereunder; 11 SECOND, to the ratable payment of all other Guarantied Obligations (as defined below), (including any Aggregate Available Amount (as defined in the Security Agreement) deposited into the L/C Collateral Account for outstanding Letters of Credit, provided that if such Letters of Credit expire without being fully drawn, then at that time, such excess amounts shall be applied as provided in this SECTION 3 to then outstanding Guarantied Obligations) (for the ratable benefit of the holders thereof); and THIRD, to the payment to or upon the order of the applicable Loan Guarantor, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. Until such Loan Guaranty Payments are so applied, the Collateral Agent shall hold such Loan Guaranty Payments in its custody in accordance with its regular procedures for handling deposited funds. Any Loan Guaranty Payments received by the Collateral Agent relating to the Obligations, the Interest Rate Obligations, the Currency Obligations and the Other Permitted Credit Exposure ("GUARANTIED OBLIGATIONS") shall be applied so that each Secured Party with respect thereto shall receive payment of the same proportionate amount of all such Guarantied Obligations. (b) Subject to the provisions of SECTION 4 which shall govern with respect to the allocation of Net Asset Sale Proceeds of Domestic Collateral, Net Insurance/Condemnation Proceeds arising therefrom or Net Debt Securities Proceeds arising from the issuance of Receivables Sale Indebtedness, (i) any Proceeds received by the Collateral Agent to be distributed under SECTION 3(a) to payment of the Senior Secured Obligations shall be applied so that each Secured Party with respect thereto that is then secured by the Domestic Collateral giving rise to such Proceeds shall receive payment of the same proportionate amount of all such Senior Secured Obligations, (ii) any Proceeds received by the Collateral Agent to be distributed under SECTION 3(a) to payment of the Second Priority Secured Obligations shall be applied so that each Secured Party with respect thereto that is then secured by the Domestic Collateral giving rise to such Proceeds shall receive payment of the same proportionate amount of all such Second Priority Secured Obligations and, (iii) any Proceeds received by the Collateral Agent to be distributed under SECTION 3(A) to payment of the Third Priority Secured Obligations shall be applied so that each Secured Party with respect thereto that is then secured by the Domestic Collateral giving rise to such Proceeds shall receive payment of the same proportionate amount of all such Third Priority Secured Obligations. For purposes of determining the proportionate amounts of all Senior Secured Obligations when Proceeds are to be distributed under this SECTION 3, the amount of the outstanding Obligations, Other Permitted Credit Exposure and New Senior Debt, respectively, shall be deemed to be the principal and interest or face amount, as applicable, then due and payable under the Credit Agreement, the Other Permitted Credit Exposure Documents (to the extent such Other Permitted Credit Exposure is then secured by the Domestic Collateral pursuant to the applicable Collateral Documents), the New Senior Debt Documents (to the extent that the New Senior Debt with respect thereto is then secured by the Domestic Collateral under the applicable Collateral Documents), and the amount of the outstanding Interest Rate Obligations and Currency Obligations of any Interest Rate Exchanger or Currency Exchanger shall be deemed to be the amount of the Company's obligations then due and payable (exclusive of expenses or similar liabilities but including any early termination payments then due) under the applicable Interest Rate Agreements or Currency Agreements. For purposes of 12 determining the proportionate amounts of all Second Priority Secured Obligations when Proceeds are to be distributed under this SECTION 3, the amount of the outstanding Second Priority Secured Obligations in respect of the Refinancing Senior Debt and Existing Senior Notes, (if the Supplemental Indenture Condition has been satisfied) respectively shall be deemed to be the principal and interest then due and payable under the Refinancing Senior Debt Documents (to the extent such Refinancing Senior Debt with respect thereto is then secured by the Domestic Collateral under the Pledge Agreement) and (only if the Supplemental Indenture Condition has been satisfied) the Existing Senior Notes. For purposes of determining the proportionate amounts of all Third Priority Secured Obligations at the time any Proceeds are to be distributed under this SECTION 3, the amount of outstanding New Junior Debt shall be deemed to be the principal and interest then due and payable under the New Junior Debt Documents (to the extent such New Junior Debt is then secured by the Domestic Collateral under the Pledge Agreement). (c) Payments by the Collateral Agent to the Lenders on account of Proceeds received by Collateral Agent in respect of the Obligations shall be made to the Lender Agent for distribution to the Lenders in accordance with the Credit Agreement and as follows: (i) any payments in respect of Interest Rate Obligations and Currency Obligations shall be made as directed by the Lender or affiliate thereof to which such Interest Rate Obligations or Currency Obligations are owed; (ii) any payments in respect of Other Permitted Credit Exposure shall be made as directed by the Other Permitted Credit Exposure Holder to which obligations under such Other Permitted Credit Exposure are owed; (iii) any payments in respect of any New Senior Debt shall be paid to the applicable New Senior Debt Representative for the benefit of the holders of such New Senior Debt; (iv) (only if the Supplemental Indenture Condition has been satisfied) any payments in respect of any Existing Senior Notes shall be paid to the applicable Existing Senior Note Trustee for the benefit of holders of such Existing Senior Notes; (v) any payments in respect of any Refinancing Senior Debt shall be paid to the applicable Refinancing Senior Debt Representative for the benefit of the holders of such Refinancing Senior Debt; and (vi) any payments in respect of any New Junior Debt shall be paid to the applicable New Junior Debt Representative for the benefit of the holders of such New Junior Debt. SECTION 4. ALLOCATION OF PROCEEDS FROM ASSET SALES AND NET INSURANCE CONDEMNATION PROCEEDS OF DOMESTIC COLLATERAL, NET DEBT SECURITIES PROCEEDS AND RECEIVABLES SALE INDEBTEDNESS. The Lender Agent acting on behalf of the Lenders, each Interest Rate Exchanger, each Currency Exchanger, each Other Permitted Credit Exposure Holder and each New Senior Debt Representative executing this Agreement or an acknowledgment hereto, acting on behalf of the holders of New Senior Debt, each Existing Senior Note Trustee, acting on behalf of the holders of the Existing Senior Notes, each Refinancing Senior Debt Representative executing an acknowledgment to this Agreement, acting on behalf of such holders of Refinancing Senior Debt, and each New Junior Debt Representative executing this Agreement or an acknowledgement hereto, acting on behalf of the holders of New Junior Debt, agree, INTER SE, that Net Asset Sale Proceeds of Domestic Collateral and any Net Insurance/Condemnation Proceeds arising from damage to, destruction of or condemnation of Domestic Collateral and Net Debt Securities Proceeds arising from the issuance of Receivables Sales Indebtedness relating to Domestic Collateral shall be allocated as provided in this SECTION 4. Company, Packaging and the other Subsidiary Guarantors agree that any Net Asset Sale Proceeds of Domestic Collateral or Net Insurance/Condemnation Proceeds arising therefrom or any Net Debt Securities Proceeds arising from the issuance of Receivables Sale Indebtedness 13 relating to Domestic Collateral shall be applied at the times, if any, required under the Credit Agreement as provided in SECTION 4(a). (a) Upon the occurrence of (i) an Asset Sale of Domestic Collateral which requires a prepayment of the Obligations as provided in the Credit Agreement or (ii) an event giving rise to Net Insurance/Condemnation Proceeds arising from damage to, destruction of or condemnation of Domestic Collateral or the issuance of Receivables Sale Indebtedness relating to Domestic Collateral giving rise to Net Debt Securities Proceeds which in each case requires a prepayment of the Obligations as provided in the Credit Agreement, the applicable Net Asset Sale Proceeds or Net Insurance/Condemnation Proceeds or Net Debt Securities Proceeds shall be applied to the payment in cash in full of, to the extent required under the Credit Agreement, the Obligations, and, to the extent but only to the extent expressly required by the applicable Financing Documents the obligations in respect of New Senior Debt (to the extent such New Senior Debt is then secured by the applicable Domestic Collateral) in proportion to their respective outstanding amounts of principal and interest, as the case may be. The allocation set forth in this paragraph (a) shall apply in all circumstances including, without limitation, with respect to any case or proceeding under any bankruptcy law or insolvency law involving creditors' rights generally. (b) To the extent received by Company, Packaging or any other Subsidiary Guarantor such entity shall pay to the Collateral Agent all of the Net Asset Sale Proceeds, Net Insurance/Condemnation Proceeds and Net Debt Securities Proceeds, which are payable under SECTION 4(a). Any such payments received by the Collateral Agent directly or pursuant to this SECTION 4(b) shall be distributed to the relevant parties as provided in SECTION 3(c). SECTION 5. INFORMATION. In the event the Collateral Agent proceeds to foreclose upon, collect, sell or otherwise dispose of or take any other action with respect to the Domestic Collateral, or any portion thereof, or to enforce any Collateral Document, or proposes to take any other action pursuant to this Agreement or requests instructions from the Secured Parties as provided herein, upon the request of the Collateral Agent, each of the following Secured Parties agrees to provide promptly to the Collateral Agent the following information: (a) The Lender Agent on behalf of the Lenders agrees to promptly from time to time notify the Collateral Agent of (i) the aggregate amount of principal of and interest on the Obligations as at such date as the Collateral Agent may specify, (ii) the current Commitment of each Lender under the Credit Agreement, and (iii) any payment received by the Lender Agent to be applied to the principal of or interest on the Obligations. The Lender Agent shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (b) Each Lender or Affiliate thereof party to an Interest Rate Agreement benefited by this Agreement, by signing an acknowledgment to this Agreement, agrees to promptly from time to time notify the Collateral Agent of (i) the notional amount under such Interest Rate Agreement and the amount payable by the Company upon early termination of such Interest Rate Agreement at the date of termination as fixed by such Interest Rate Agreement and (ii) any payment received by such Lender to be applied to amounts due upon early termination of such 14 Interest Rate Agreement. Such Lender shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (c) Each Lender or Affiliate thereof party to a Currency Agreement benefited by this Agreement, by signing an acknowledgment to this Agreement, agrees to promptly from time to time notify the Collateral Agent of (i) the notional amount under such Currency Agreement and the amount payable by the Company upon early termination of such Currency Agreement at the date of termination as fixed by such Currency Agreement and (ii) any payment received by such Lender to be applied to amounts due upon early termination of such Currency Agreement. Such Lender shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (d) Each Other Permitted Credit Exposure Holder benefiting from an Other Permitted Credit Exposure Guaranty benefited by this Agreement, by executing this Agreement or signing an acknowledgment to this Agreement, as the case may be, agrees to promptly from time to time notify the Collateral Agent of (i) the aggregate amount of principal and interest outstanding with respect to the Other Permitted Credit Exposure to which such Other Permitted Credit Exposure Guaranty relates, whether such amounts are fully guarantied by such Other Permitted Credit Exposure Guaranty and the amount, if any, then due and payable under such Other Permitted Credit Exposure Guaranty, as at such date as the Collateral Agent may specify and (ii) any payment received by such Other Permitted Credit Exposure Holder to be applied to the principal of or interest on the amounts due with respect to the Other Permitted Credit Exposure and such Other Permitted Credit Exposure Guaranty. The Other Permitted Credit Exposure Holder shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (e) Each New Senior Debt Representative with respect to New Senior Debt benefited by this Agreement, by executing this Agreement or signing an acknowledgment to this Agreement, as the case may be, agrees to promptly from time to time notify the Collateral Agent of (i) the aggregate amount of principal and interest outstanding under the applicable New Senior Debt Documents and the amount, if any, then due and payable under such New Senior Debt Documents, as at such date as the Collateral Agent may specify and (ii) any payment received by such New Senior Debt Representative to be applied to the principal of or interest on the amounts due with respect to such New Senior Debt and such New Senior Debt Documents. The New Senior Debt Representative shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (f) Each Refinancing Senior Debt Representative with respect to Refinancing Senior Debt benefited by this Agreement, by executing this Agreement or signing an acknowledgment to this Agreement, as the case may be, agrees to promptly from time to time notify the Collateral Agent of (i) the aggregate amount of principal and interest outstanding under the applicable Refinancing Senior Debt Documents and the amount, if any, then due and payable under such Refinancing Senior Debt Documents, as at such date as the Collateral Agent may specify and (ii) any payment received by such Refinancing Senior Debt Representative to be applied to the principal of or interest on the amounts due with respect to such Refinancing Senior Debt and such Refinancing Senior Debt Documents. The Refinancing Senior Debt 15 Representative shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. (g) Only if the Supplemental Indenture Condition has been satisfied, Collateral Agent may from time to time request each Existing Senior Note Trustee to notify the Collateral Agent of the outstanding principal amount of the Existing Senior Notes for which it is trustee and the amount of accrued but unpaid interest thereon, at such date as the Collateral Agent may specify and for each Existing Senior Note Trustee to, or cause the registrar for the Existing Senior Notes for which it is trustee to, certify as to such amount as reflected in the register maintained for such purpose by such Existing Senior Note Trustee or such registrar, as the case may be, and to the extent any such Existing Senior Note Trustee or registrar so certifies, the Collateral Agent shall be entitled to rely conclusively upon such certification. If one or more Existing Senior Note Trustees fail to respond to such a request by Collateral Agent, Collateral Agent may rely conclusively on the records of Company for purposes of determining the outstanding principal amount of the Existing Senior Notes and/or the amount of accrued but unpaid interest thereon. (h) Each New Junior Debt Representative with respect to New Junior Debt benefited by this Agreement, by executing this Agreement or signing an acknowledgment to this Agreement, as the case may be, agrees to promptly from time to time notify the Collateral Agent of (i) the aggregate amount of principal and interest outstanding under the applicable Refinancing Senior Debt Documents and the amount, if any, then due and payable under such Senior Refinancing Debt Documents, as at such date as the Collateral Agent may specify and (ii) any payment received by such New Junior Debt Representative to be applied to the principal of or interest on the amounts due with respect to such New Junior Debt and such New Junior Debt Documents. The New Junior Debt Representative shall certify as to such amounts and the Collateral Agent shall be entitled to rely conclusively upon such certification. SECTION 6. INTEREST RATE AGREEMENTS; CURRENCY AGREEMENTS; OTHER PERMITTED CREDIT EXPOSURE DOCUMENTS; NEW SENIOR DEBT DOCUMENTS; REFINANCING SENIOR DEBT DOCUMENTS; NEW JUNIOR DEBT DOCUMENTS. (a) Each Lender or respective Affiliate thereof may cause Interest Rate Obligations and Currency Obligations to be secured by the Collateral Documents and guaranteed by the Loan Guaranties by executing an acknowledgment in the form contained on the signature pages hereof, and by delivering such executed acknowledgment (which to be effective must be acknowledged by the Borrowers' Agent) to the Collateral Agent, by which such Lender Affiliate thereof agrees to be bound by the terms of this Agreement. (b) Each Other Permitted Credit Exposure Holder may cause its respective Other Permitted Credit Exposure Documents to be secured by the Collateral Documents and guaranteed by the Loan Guaranties by executing an acknowledgment in the form contained on the signature pages hereof, and by delivering such executed acknowledgment (which to be effective must be acknowledged by the Borrowers' Agent) to the Collateral Agent, by which such Other Permitted Credit Exposure Holder agrees to be bound by the terms of this Agreement. 16 (c) The holders of each issue of New Senior Debt may cause such New Senior Debt to be secured by the Collateral Documents by causing their New Senior Debt Representative to execute an acknowledgement in the form contained on the signature pages hereof, and by delivering such executed acknowledgement (which to be effective must be acknowledged by the Borrowers' Agent) to the Collateral Agent, by which such New Senior Debt Representative agrees to be bound by the terms of this Agreement. (d) The holders of each issue of Refinancing Senior Debt may cause such Refinancing Senior Debt to be secured by the Pledge Agreement by causing their Refinancing Senior Debt Representative to execute an acknowledgement in the form contained on the signature pages hereof and by delivering such executed acknowledgement (which to be effective must be acknowledged by Company and Packaging) to the Collateral Agent, by which such Refinancing Senior Debt Representative agrees to be bound by the terms of this Agreement. (e) The holders of each issue of New Junior Debt may cause such New Junior Debt to be secured by the Pledge Agreement by causing their New Junior Debt Representative to execute an acknowledgement in the form contained on the signature pages hereof and by delivering such executed acknowledgement (which to be effective must be acknowledged by Company and Packaging) to the Collateral Agent, by which such New Junior Debt Representative agrees to be bound by the terms of this Agreement. SECTION 7. DISCLAIMERS, INDEMNITY, ETC. (a) The Collateral Agent shall have no duties or responsibilities except those expressly set forth in this Agreement, the Collateral Documents or the Loan Guaranties, and the Collateral Agent shall not by reason of this Agreement, the Collateral Documents or the Loan Guaranties be a trustee for any Secured Party or have any other fiduciary obligation to any Secured Party (including any obligation under the Trust Indenture Act of 1939, as amended). The Collateral Agent shall not be responsible to any Secured Party for any recitals, statements, representations or warranties contained in this Agreement, the Credit Agreement, the Interest Rate Agreements, the Currency Agreements, the Other Permitted Credit Exposure Guaranties or any other documents evidencing or relating to any Other Permitted Credit Exposure, the New Senior Debt Documents, the Existing Senior Note Indentures, the Existing Senior Notes, the Existing Senior Notes Subordinated Guaranty, the Refinancing Senior Debt Documents, the New Junior Debt Documents, the Collateral Documents or the Loan Guaranties (collectively, the "FINANCING AGREEMENTS") or in any certificate or other document referred to or provided for in, or received by any of them under, any of the Financing Agreements, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any of the Financing Agreements or any other document referred to or provided for therein or any Lien under the Collateral Documents or the perfection or priority of any such Lien or for any failure by any Party to perform any of its respective obligations under any of the Financing Agreements. The Collateral Agent may employ agents and attorneys-in-fact and shall not be responsible, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither the Collateral Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct. 17 (b) The Collateral Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telex, telecopy, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Holdings or any Subsidiary of Holdings), independent accountants and other experts selected by the Collateral Agent. As to any matters not expressly provided for by this Agreement, the Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by Requisite Obligees, and such instructions of Requisite Obligees, and any action taken or failure to act pursuant thereto, shall be binding on all of the Secured Parties. (c) The Lender Agent on behalf of the Lenders, each Interest Rate Exchanger, each Currency Exchanger and each Other Permitted Credit Exposure Holder (collectively, the "PAYING INDEMNIFYING PARTIES") agrees that the Secured Parties represented by it shall indemnify the Collateral Agent, ratably in accordance with the amount of the obligations held by such Secured Parties secured by the Collateral Documents, to the extent neither reimbursed by any Grantor under any Collateral Document nor reimbursed out of any Proceeds pursuant to SECTION 3 hereof and the corresponding provisions of the Collateral Documents for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in any way relating to or arising out of any of the Financing Agreements or any other documents contemplated by or referred to therein or the transactions contemplated thereby or the enforcement of any of the terms of any thereof; PROVIDED, HOWEVER, that no such Secured Party shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Collateral Agent. Each New Senior Debt Representative, on behalf of such New Senior Debt Representative and the holders in respect of which such New Senior Debt Representative is the Representative, agrees that, as provided in SECTION 3 hereof, Section 12 of the Pledge Agreement, Section 18 of the Security Agreement and the application of proceeds provision of each Mortgage deductions from distributions otherwise due with respect to such New Senior Debt will be made so that the holders of such New Senior Debt shall share with the Paying Indemnifying Parties, ratably in accordance with the amount of New Senior Debt secured by the Collateral Documents, the payment of the amounts due under the preceding sentence. As provided in SECTION 3 hereof, and Section 12 of the Pledge Agreement and only if the Supplemental Indenture Condition has been satisfied, deductions from distributions otherwise due with respect to the Existing Senior Note Trustee on behalf of the holders of Existing Senior Notes will be made so that such holders of Existing Senior Notes shall share with the Paying Indemnifying Parties, ratably in accordance with the amount (without duplication) of such Existing Senior Notes secured by the Pledge Agreement, the payment of the amounts due under the second preceding sentence. Each Refinancing Senior Debt Representative, on behalf of such Refinancing Senior Debt Representative and the holders in respect of which such Refinancing Senior Debt Representative is the Refinancing Senior Debt Representative, agrees that, as provided in SECTION 3 hereof, and Section 12 of the Pledge Agreement, deductions from distributions otherwise due with respect to such Refinancing Senior Debt will be made so that the holders of such Refinancing Senior Debt will share with the Paying Indemnifying Parties, ratably in accordance with the amount of Refinancing Senior Debt secured by the Pledge Agreement, the payment of the amounts due under the third preceding sentence. Each New Junior Debt Representative, on behalf of such New Junior Debt Representative and 18 the holders in respect of which such New Junior Debt Representative is the New Junior Debt Representative, agrees that, as provided in and SECTION 3 hereof, and Section 12 of the Pledge Agreement, deductions from distributions otherwise due with respect to such New Junior Debt will be made so that the holders of such New Junior Debt will share with the Paying Indemnifying Parties, ratably in accordance with the amount of New Junior Debt secured by the Pledge Agreement, the payment of the amounts due under the fourth preceding sentence. (d) Except for action expressly required of the Collateral Agent hereunder, the Collateral Agent shall, notwithstanding anything to the contrary in SECTION 7(c) hereof, in all cases be fully justified in failing or refusing to act hereunder unless it shall be further indemnified to its satisfaction by the Secured Parties against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. (e) The Collateral Agent may deem and treat the payee of any promissory note or other evidence of indebtedness relating to the Senior Secured Obligations, Second Priority Secured Obligations or Third Priority Secured Obligations as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof, signed by such payee and in form satisfactory to the Collateral Agent, shall have been filed with the Collateral Agent. Any request, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any such note or other evidence of indebtedness shall be conclusive and binding on any subsequent holder, transferee or assignee of such note or other evidence of indebtedness and of any note or notes or other evidences of indebtedness issued in exchange therefor. (f) Except as expressly provided herein and in the Collateral Documents, the Collateral Agent shall have no duty to take any affirmative steps with respect to the collection of amounts payable in respect of the Domestic Collateral. The Collateral Agent shall incur no liability to any Secured Party as a result of any sale of any Domestic Collateral at any private sale. (g) (i) Until such time as the Senior Secured Obligations shall have been indefeasibly paid in full, the Collateral Agent may resign at any time by giving at least 30 days' notice thereof to the Secured Parties (such resignation to take effect as hereinafter provided) and the Collateral Agent may be removed as Collateral Agent at any time by Requisite Obligees. In the event of such resignation or removal of the Collateral Agent, Requisite Obligees shall thereupon have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been so appointed by Requisite Obligees and shall have accepted such appointment within 30 days after the notice of the intent of the Collateral Agent to resign, then the retiring Collateral Agent may, on behalf of the other Secured Parties, appoint a successor Collateral Agent. Any successor Collateral Agent appointed pursuant to this clause (i) (A) shall be a commercial bank organized under the laws of the United States of America or any state thereof and having a combined capital and surplus of at least $500,000,000 and (B) unless an Event of Default or Potential Event of Default shall have occurred and be continuing, shall be approved by Company. (ii) After the indefeasible payment in full in cash of the Senior Secured Obligations and until such time as the Second Priority Secured Obligations are paid in full, the 19 Collateral Agent may resign at any time by giving at least 30 days' notice thereof to each Existing Senior Note Trustee only if the Existing Senior Notes are then secured by any of the Domestic Collateral), and each Refinancing Senior Debt Representative (to the extent such Refinancing Senior Debt is then secured by any of the Domestic Collateral), (such resignation to take effect as hereinafter provided) and the Collateral Agent may be removed as Collateral Agent at any time by the appropriate Requisite Obligees. In the event of any such resignation or removal of the Collateral Agent, such Requisite Obligees shall thereupon have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been so appointed within 30 days after the notice of the intent of the Collateral Agent to resign, then the retiring Collateral Agent may, on behalf of the Requisite Obligees, appoint a successor Collateral Agent. Any successor Collateral Agent appointed pursuant to this clause (ii) (A) shall be a commercial bank organized under the laws of the United States of America or any state thereof and having a combined capital and surplus of at least $500,000,000 and (B) unless an Event of Default or Potential Event of Default shall have occurred and be continuing, shall, unless such successor Collateral Agent is appointed by the retiring Collateral Agent, be approved by Company. (iii) After the indefeasible payment in full in cash of all Senior Secured Obligations and Second Priority Secured Obligations and until such time as the Third Priority Secured Obligations are paid in full, the Collateral Agent may resign at any time by giving at least 30 days' notice thereof to each New Junior Debt Representative (to the extent such New Junior Debt is then secured by any of the Domestic Collateral), (such resignation to take effect as hereinafter provided) and the Collateral Agent may be removed as Collateral Agent at any time by the appropriate Requisite Obligees. In the event of any such resignation or removal of the Collateral Agent, such Requisite Obligees shall thereupon have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been so appointed within 30 days after the notice of the intent of the Collateral Agent to resign, then the retiring Collateral Agent may, on behalf of the Requisite Obligees, appoint a successor Collateral Agent. Any successor Collateral Agent appointed pursuant to this clause (iii) (A) shall be a commercial bank organized under the laws of the United States of America or any state thereof and having a combined capital and surplus of at least $500,000,000 and (B) unless an Event of Default or Potential Event of Default shall have occurred and be continuing, shall, unless such successor Collateral Agent is appointed by the retiring Collateral Agent, be approved by Company. (iv) Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent, and the retiring or removed Collateral Agent shall thereupon be discharged from its duties and obligations hereunder. After any retiring or removed Collateral Agent's resignation or removal hereunder as Collateral Agent, the provisions of this SECTION 7 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Collateral Agent. (v) In no event shall Collateral Agent or any Secured Party be liable or responsible for any funds or investments of funds held by any Grantor or any affiliates thereof. 20 SECTION 8. NO IMPAIRMENT OF SUBORDINATION IN RIGHTS OF PAYMENT. Each New Junior Debt Representative agrees, which agreement shall be binding upon each and every holder of the New Junior Debt, that the agreements and obligations of the holders of the New Junior Debt relating to the subordination of the right of payment of the holders of the New Junior Debt to the prior payment of "Senior Indebtedness" or terms of similar import shall not be impaired in any manner by the pledge of the Domestic Collateral and the security interest granted under the Pledge Agreement or the exercise of any rights provided thereunder and that the rights of the holders of such "Senior Indebtedness" shall not be impaired in any manner by any such action. SECTION 9. MISCELLANEOUS. (a) All notices and other communications provided for herein shall be in writing and may be personally served, telecopied, telexed or sent by United States mail and shall be deemed to have been given when delivered in person, upon receipt of telecopy or telex or four Business Days after deposit in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this SECTION 9(A)) shall be as set forth under each party's name on the signature pages (including acknowledgments) hereof. (b) This Agreement may be modified or waived only by an instrument or instruments in writing signed by the Collateral Agent and the Lender Agent with the written consent of Requisite Obligees, except that any modification or waiver adversely affecting a Secured Party's rights under Section 3 or 4 hereof shall require the written consent of such Secured Party; PROVIDED, HOWEVER that, notwithstanding the foregoing, the written consent of the Secured Parties shall not be required with respect to amendments, modifications or waivers necessary to permit the incurrence of additional Indebtedness secured by the Domestic Collateral and entitled to the benefits of the Pledge Agreement, the Security Agreement and/or the Mortgages insofar as the foregoing is not prohibited by the Financing Agreements benefiting such Secured Party, including for the purposes of providing any successor or replacement credit agreement or bank facility with substantially the same or similar benefits, rights and priorities hereunder as the Credit Agreement, and including without limitation any amendments, modifications or waivers for the purpose of adding appropriate references to additional parties in, and according such parties the benefits of, any of the provisions hereof in connection with the incurrence of such Indebtedness. (c) This Agreement shall be binding upon and inure to the benefit of the Collateral Agent, each Secured Party and their respective successors and assigns. (d) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. (e) This Agreement shall become effective as to the Lenders, the Lender Agent and the current Other Permitted Credit Exposure Holders listed on the signature pages hereof, and the Collateral Agent upon the execution of this Agreement by the Lender Agent and each current Other Permitted Credit Exposure Holder and the Collateral Agent and the delivery of each such Person's counterparts to the Collateral Agent. This Agreement shall become effective 21 as to each Interest Rate Exchanger, each Currency Exchanger, each future Other Permitted Credit Exposure Holder, each New Senior Debt Representative, each Refinancing Senior Debt Representative, and each New Junior Debt Representative, respectively, upon the execution of an acknowledgment by any such Person or its representative as contemplated by SECTION 6 and delivery of such executed acknowledgment (which to be effective shall also be acknowledged by the Borrowers' Agent) to the Collateral Agent or with respect to the Existing Senior Note Trustees, if they deliver such executed acknowledgement or if the Supplemental Indenture Condition has been satisfied. (f) Collateral Agent shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 8.6 of the Credit Agreement shall also constitute notice of resignation as Collateral Agent under this Agreement and each of the Collateral Documents; removal of Administrative Agent pursuant to subsection 8.6 of the Credit Agreement shall also constitute removal as Collateral Agent under this Agreement and each of the Collateral Documents; and appointment of a successor Administrative Agent pursuant to subsection 8.6 of the Credit Agreement shall also constitute appointment of a successor Collateral Agent under this Agreement and each of the Collateral Documents. Upon the acceptance of any appointment as Administrative Agent under subsection 8.6 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent under this Agreement, and the retiring or removed Collateral Agent under this Agreement shall promptly (i) transfer to such successor Collateral Agent all sums, securities and other items of Collateral held hereunder or under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Collateral Agent under this Agreement and the Collateral Documents, and (ii) execute and deliver to such successor Collateral Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Collateral Agent of the security interests created under the Collateral Documents, whereupon such retiring or removed Collateral Agent shall be discharged from its duties and obligations under this Agreement and each of the Collateral Documents. After any retiring or removed Administrative Agent's resignation or removal hereunder as Collateral Agent, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Collateral Agent hereunder. (g) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. (h) Anything contained in this Agreement to the contrary notwithstanding, each party to this Agreement shall no longer be a party from and after such time as all of the obligations owing such party and secured by any of the Collateral Documents or guaranteed by any of the Loan Guaranties, or the instruments representing the same, shall have ceased to be outstanding by virtue of the payment in full in cash thereof or the cancellation thereof or delivery for cancellation thereof in accordance with their terms. [Remainder of page intentionally left blank] 22 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. BANKERS TRUST COMPANY, as Lender Agent for the Lenders By /s/ Mary Jo Jolly ---------------------------------- Title Assistant Vice President -------------------------------- Notice Address: Bankers Trust Company 130 Liberty Street, 14th Floor New York, New York 10006 Attention: Mary Jo Jolly With a copy to: Bankers Trust Company 300 South Grand Avenue, 41st Floor Los Angeles, CA 90071 Attention: Robert G. Kolb Annex 1 BANKERS TRUST COMPANY, as Collateral Agent By: /s/ Mary Jo Jolly ------------------------------ Title: Assistant Vice President --------------------------- Notice Address: Bankers Trust Company 130 Liberty Street, 14th Floor New York, New York 10006 Attention: Mary Jo Jolly With a copy to: Bankers Trust Company 300 South Grand Avenue, 41st Floor Los Angeles, California 90071 Attention: Robert G. Kolb Annex 2 EACH PLEDGOR, by its execution of this Agreement in the space provided below, HEREBY ACKNOWLEDGES AND AGREES to the foregoing provisions of this Agreement including, without limitation, Sections 3 and 4 hereof. PLEDGOR OWENS-ILLINOIS GROUP, INC. By /s/ Jeffrey A. Denker ---------------------------------- Title Assistant Treasurer ------------------------------- Notice Address: One Seagate Toledo, Ohio 43666 Attention: Treasurer PLEDGOR OWENS BROCKWAY PACKAGING INC. By /s/ Jeffrey A. Denker ---------------------------------- Title Assistant Treasurer ------------------------------- Notice Address: One Seagate Toledo, Ohio 43666 Attention: Treasurer Annex 3 EX-10.1 7 a2063263zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 OWENS-ILLINOIS, INC. EXECUTIVE DEFERRED SAVINGS PLAN 1. PURPOSE. The purpose of this Owens-Illinois, Inc. Executive Deferred Savings Plan is to provide selected corporate officers and other senior management employees of Owens-Illinois, Inc. and certain companies affiliated with it, to the extent any of such officers or employees are restricted as to their participation in the Owens-Illinois Stock Purchase and Savings Program, as nearly as practicable with an equivalent benefit. 2. DEFINITIONS. As used herein: "Account" means an Executive's Cash Deferral Account, Cash Matching Account, Company Stock Deferral Account and Company Stock Matching Account; "Board" means the Board of Directors of O-I; "Cash Deferral Account" means a memorandum account established and maintained on the books of the Company to reflect amounts of an Executive's Deferral Account which have been credited in dollars and on which interest accrues, in accordance with Section 6.2 hereof; "Cash Matching Account" means a memorandum account established and maintained on the books of the Company to reflect amounts of an Executive's Matching Account which have been credited in dollars and on which interest accrues, in accordance with Section 6.2 hereof; "CEO" means the Chief Executive Officer of O-I or any other officer, employee, or committee of O-I designated by said Chief Executive Officer to whom any or all of his powers or duties under the Plan may be delegated; "Code" means the Internal Revenue Code of 1986, as amended; "Committee" means the Compensation Committee of the Board or any other committee of the Board to which administrative authority with respect to the Plan may be delegated by the Board; "Company" means the corporate group of companies consisting of O-I and each corporation (or unincorporated business entity) 50 percent or more of the voting shares (or other ownership interests) of which are owned, directly or indirectly, by O-I; "Company Stock" means the Company's common stock, $.01 par value; "Company Stock Unit" means a unit of value, equal in value to one share of Company Stock, by which the value of an Executive's Company Stock Deferral Account and Company Stock Matching Account are determined pursuant to and in accordance with Section 6.3 hereof; "Company Stock Deferral Account" means a memorandum account established and maintained on the books of the Company to reflect amounts of an Executive's Deferral Account which have been credited in Company Stock Units and to which additional Company Stock Units may be credited to reflect dividends and other distributions and/or adjustments, if any, on Company Stock, in accordance with Sections 6.3 and 6.4 hereof; "Company Stock Matching Account" means a memorandum account established and maintained on the books of the Company to reflect amounts of an Executive's Matching Account which have been credited in Company Stock Units and to which additional Company Stock Units may be credited to reflect dividends and other distributions and/or adjustments, if any, on Company Stock, in accordance with Sections 6.3 and 6.4 hereof; "Current Compensation" means the "Compensation", as defined in SPASP, paid to an Executive during a year, without regard to any limitations on the amount thereof imposed under Section 401(a)(17) of the Code; "Deferral Account" means a deferred compensation memorandum account established and maintained on the books of the Company to reflect the value of an Executive's interest in the Plan attributable to his Deferral Elections; "Deferral Election" means an election made by an Executive under Section 5.1 of the Plan; "Executive" means a corporate officer or other senior management employee of the Company eligible to participate in the Plan under Section 4 of the Plan; "Executive Compensation Committee" means a committee comprised of the Company's Chief Financial Officer, the Company's General Counsel, and the Company's Director of Compensation and Benefits. In the event of a vacancy in any one or more of such offices or positions within the Company, any corresponding vacancy on the Executive Compensation Committee shall be filled by the officer or employee of the Company who succeeds to the duties of such vacant office or position or by another officer or employee of the Company designated by the Board. "Matching Account" means a deferred compensation memorandum account established and maintained on the books of the Company to reflect the value of an Executive's interest in the Plan attributable to the Company's Matching Credits for his benefit; "Matching Credit" means a credit by the Company to an Executive's Matching Account under Section 5.3 of the Plan; -2- "O-I" means Owens-Illinois, Inc., a Delaware corporation; "Plan" means this Owens-Illinois, Inc. Executive Deferred Savings Plan, as from time to time in effect; "SPASP" means the Owens-Illinois Stock Purchase and Savings Program, as from time to time in effect; and Words of the masculine gender include correlative words of the feminine and neuter genders and vice versa, and words denoting the singular include the plural and vice versa. 3. ADMINISTRATION. The Plan shall be administered by the Committee. The administrative powers of the Committee shall include the powers to interpret the Plan and to exercise full and complete discretion to adopt, modify, and/or rescind (or to authorize the CEO or one or more other appropriate officers of O-I to adopt, modify, and/or rescind) any rules, determinations, policies, or procedures deemed necessary or appropriate for the maintenance and administration of the Plan. Without limiting the generality of the foregoing, the Committee's rules, determinations, policies, and procedures under this Plan (including without limitation any rules and procedures adopted under Section 5.2 hereof) may be consistent with the provisions of, and any comparable rules, determinations, policies, and procedures adopted by the Company under, SPASP. Any provision hereof to the contrary notwithstanding, only the Committee or the Board may exercise any discretionary and/or administrative authority under the Plan with respect to the CEO's participation in the Plan, and neither the Board nor the Committee may delegate any such authority to the CEO or to any other officer, employee, or committee of O-I (other than another committee of the Board of which the CEO is not a voting member). 4. ELIGIBILITY AND PARTICIPATION. Each corporate officer or other senior management employee of the Company who is eligible to participate in SPASP but whose participation therein is restricted by reason of the limitations and/or prohibitions imposed by: (a) Section 401(a)(17) of the Code, as to the maximum amount of his annual compensation that may be taken into account under SPASP; (b) Section 401(k) of the Code, as to "excess contributions" that may not be contributed or retained under SPASP for the benefit of "highly compensated employees"; -3- (c) Section 402(g) of the Code, as to the maximum annual "elective deferrals" that may be excluded from his gross income with respect to contributions made on his behalf under SPASP; or (d) Section 415 of the Code, as to the maximum "annual addition" that may be made to an account for his benefit under SPASP, or who is entirely excluded from current participation in SPASP solely because, as determined by the Committee or the CEO, his participation therein would jeopardize the qualification of SPASP under Section 401(a) of the Code, shall be eligible to participate in this Plan if, and for so long as, he is selected to do so by the Committee or the CEO. No member of the Board who is not an employee of the Company shall be eligible to participate in the Plan, but a member of the Board who is otherwise eligible to participate in the Plan shall not be disqualified from such participation solely by reason of such Board membership. 5. DEFERRAL ELECTIONS AND MATCHING CREDITS. 5.1 Each Executive eligible to participate in the Plan under Section 4 of the Plan may elect from time to time, by written notice to the Company, given before the first day of any regular Company pay period for salaried employees, to defer his receipt, subject to the provisions of the Plan, of a specified part of his Current Compensation earned in the next pay period and thereafter. The amount of an Executive's Current Compensation to be deferred pursuant to his Deferral Elections under this Plan shall not exceed, on an annual basis, the excess of 19% of his Current Compensation over the sum of his annual "MTSO Contributions" and "SCO Contributions" under (and as defined in) SPASP. 5.2 An Executive may elect prospectively to change the rate of or revoke his Deferral Election with respect to his future Current Compensation at such times and with such frequency as may be permitted pursuant to rules and procedures of uniform application adopted by the Committee. Until so changed or revoked, an Executive's Deferral Election shall remain in effect with respect to all Current Compensation earned by the Executive after the date thereof. 5.3 The Company shall post a Matching Credit to the Matching Account of each Executive who has made a Deferral Election under Section 5.1 in an amount equal to 50 percent of the amount of such Deferral Election, up to a maximum annual Matching Credit equal to the excess of (a) four percent of the Executive's Current Compensation over (b) the amount of the annual "Company Matching Contribution" made on his behalf under (and as defined in) SPASP. -4- 5.4 For purposes of Sections 5.1 and 5.3 of the Plan, an Executive who is eligible to participate in SPASP for all or any part of a year shall be deemed conclusively to have made "MTSO Contributions" under (and as defined in) SPASP in the maximum amount which he is permitted to make thereunder for the period of such eligibility. 6. ACCOUNTS. 6.1 All amounts deferred under the Plan shall be credited by the Company, as of the date such amounts would otherwise be payable to the Executive in the absence of a Deferral Election, to the Executive's Cash Deferral Account and/or Company Stock Deferral Account, in the proportions specified by the Executive at the time of his Deferral Election. All Matching Credits shall be posted concurrently with such deferred amounts to the Executive's Cash Matching Account and/or Company Stock Matching Account, in the same proportions as the deferred amounts to which they relate. In the absence of such a specification by an Executive, all such amounts shall be credited to his Cash Deferral Account and Cash Matching Account. 6.2 All amounts credited to an Executive's Cash Deferral Account and Cash Matching Account shall, until paid or distributed in full, accrue interest, compounded monthly, at an annual rate equal from time to time to the average annual yield on domestic corporate bonds of Moody's A-rated companies (as most recently reported in the Survey of Current Business published by the United States Department of Commerce or a successor publication) or at such other rate as the Board may at any time and from time to time designate prospectively; provided, however, that no such action taken by the Board after the date on which notice of an installment payment election (or of the modification of any such previous election) is given pursuant to Section 7.5 hereof shall operate to reduce the rate of interest on the unpaid balance of the amount payable pursuant to such election (or modification) to less than the rate which would have been in effect hereunder in the absence of such action by the Board. 6.3 An Executive's Company Stock Deferral Account and Company Stock Matching Account shall be credited with a number (including fractions) of Company Stock Units equal in value to the amount or amounts specified to be credited to each respective Account. For all purposes of the Plan, the value of Company Stock Units shall be determined by reference to the closing price of Company Stock on the principal exchange on which Company Stock is traded on the day before the date on or as of which such value is being determined or, if no Company Stock was traded such day, then on the next preceding trading day on which Company Stock was so traded. As of the date any dividend is paid to shareholders of Company Stock, each Company Stock Deferral Account and -5- Company Stock Matching Account shall be credited with a number (including fractions) of additional Company Stock Units equal in value to the dividends paid on the number of shares of Company Stock represented by the Units in such Account immediately before such dividend was paid. 6.4 In the event that the outstanding shares of Company Stock are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company, or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, or reclassification, or if the number of shares is increased or decreased by reason of a stock split-up, stock dividend, combination of shares or any other increase or decrease in the number of such shares of Company Stock effected without receipt of consideration by the Company (provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration"), the number of Company Stock Units credited or to be credited to Executives' Company Stock Deferral Accounts and Company Stock Matching Accounts under the Plan shall be adjusted accordingly. 6.5 An Executive may change the proportion in which amounts to be deferred in the future in accordance with his Deferral Election are to be credited to his Cash Deferral Account and Company Stock Deferral Account and/or the proportion in which amounts previously deferred are to be reallocated between his are to be reallocated between his Cash Deferral Account and Company Stock Deferral Account, at such times and with such frequency as may be permitted pursuant to rules and procedures of uniform application adopted by the Committee. All such elections and modifications shall also apply in the same manner to such Executive's Cash Matching Account and Company Stock Matching Account. 6.6 The Company shall be under no duty to segregate or set aside any amount credited to any Account from the general assets of the Company, but the Board may, in its discretion, direct the establishment of any trusteed, insured, or other payment arrangement from which the Company's obligations as to an Executive under the Plan may be paid. No Executive, beneficiary, estate, or other person claiming through or under an Executive shall have any legal or beneficial property interest whatsoever in any assets of the Company or in any such payment arrangement which may be established at the direction of the Board except as may be expressly provided by such payment arrangement. Neither the establishment of an Account nor the crediting of any amounts thereto nor the establishment of any payment arrangement (except as may be expressly provided by such payment arrangement) shall be deemed to create a trust of any kind, any fiduciary relationship between the Company and any person, or any collateral security for the Company's obligations under the Plan. To the extent that an Executive or any other person acquires a right to receive any payment from the Company under this Plan, such right shall be no greater than that of any other unsecured general -6- creditor of the Company. The Company shall provide to each Executive who has made any Deferral Election, at least annually, a statement of his Account balances. 7. PAYMENT OF ACCOUNT BALANCES. 7.1 Each Executive shall at all times have a nonforfeitable, fully vested interest in the amounts credited to his Deferral Account and Matching Account. 7.2 The entire amount credited to an Executive's Accounts, including accrued interest to the date of payment, shall become payable upon termination of the Executive's employment with the Company by reason of his death, total and permanent disability, normal or early retirement pursuant to any retirement plan sponsored by the Company, or any other reason. Amounts so payable shall be paid to the Executive in cash in a lump sum as soon as practicable after such termination of employment, but in no event later than March 31 of the following year, unless an election of an installment form of payment is in effect as provided in Section 7.5 hereof, in which event such amount shall be paid in the installment form so elected. To facilitate the cash-only distribution(s) contemplated by the Plan, the entire value of an Executive's Company Stock Deferral Account and Company Stock Matching Account on the date of termination of employment with the Company shall be respectively reallocated to and thereafter held in his Cash Deferral Account and his Cash Matching Account, from which all distributions under the Plan shall be made. 7.3 In the event of an Executive's death before his Accounts plus interest have been paid to him in full, the entire amount then credited to his Accounts, including accrued interest to the date of payment, shall be paid in cash in a lump sum to the beneficiary or beneficiaries named by him in a written designation filed with the Company (or, in the absence of such a designation, to his estate). Such payment shall be made as soon as practicable after such Executive's death but in no event later than March 31 of the following year. 7.4 Before termination of employment, an Executive may request a withdrawal from his Deferral Accounts of an amount sufficient to meet a financial hardship that would justify a withdrawal of the same amount from a "MTSO Contributions Account" under (and as defined in) SPASP. The Committee shall determine the existence of a bona fide financial hardship based on non-discriminatory procedures, taking into account any then applicable rulings or regulations of the Internal Revenue Service. The standards established by the Committee for determining the existence of a financial hardship shall be uniformly applied to all Executives who request such a withdrawal, and the Committee's decision with respect to each such request shall be final. An approved hardship withdrawal shall be paid to the Executive in cash as soon as practicable after approval and shall first -7- reduce his Cash Deferral Account, and then, to the extent insufficient, shall reduce his Company Stock Deferral Account. 7.5 An Executive may elect, by written notice to and, if required as hereinafter provided, with the consent of the Executive Compensation Committee, to have such amount or any part thereof paid in any specified number, not to exceed 15, of substantially equal annual installments commencing as soon as practicable after the Executive's termination of employment, but in no event later than March 31 of the following year, together with interest on the unpaid balance thereof at the rate called for under Section 6.2 hereof. Any such Executive who has made such an election may revoke or modify such election by subsequent written notice to and, if required as hereinafter provided, with the consent of the Executive Compensation Committee. An Executive's election under this Section 7.5, or any revocation or modification of a previous election, will be effective without the consent of the Executive Compensation Committee only to the extent that it applies to amounts credited to his Accounts thereafter. Any election, or any revocation or modification of a previous election, applicable to any other portion of his Accounts, will be subject to the consent of the Executive Compensation Committee pursuant to Section 7.6 hereof. 7.6 The Executive Compensation Committee shall grant or deny its consent to an election under Section 7.5 hereof, if required, or to a revocation or modification of any such election, if required, as soon as administratively practicable after its receipt of written notice thereof and shall promptly notify the Executive of its action with respect thereto. In granting or denying such consent the Executive Compensation Committee shall consider and take into account the form in which benefits are payable with respect to the Executive under SPASP and under any other applicable Company plan or arrangement; the interests of the Executive and/or his beneficiary or beneficiaries and of other Executives and/or their beneficiaries; the effect of such election (or of such revocation or modification of a previous election) on the Company's current and projected future financial condition in the context of other similar elections under this Plan and all other Company plans or arrangements for the benefit of its employees; and such other factors and circumstances as the Executive Compensation Committee, in its discretion, deems relevant. All actions of the Executive Compensation Committee shall be taken by majority vote at a meeting or by majority approval in writing in lieu of a meeting and shall be final and binding on all parties interested therein. 8. AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time and from time to time amend, suspend, or terminate the Plan in whole or in part; provided, however, that no such amendment, suspension, or termination may, without the consent of each Executive affected thereby, have any adverse retroactive effect on the rights of any Executive (or any person claiming through or under him) under the Plan unless required by applicable law. -8- 9. MISCELLANEOUS. 9.1 At the request of an Executive or on its own initiative, the Committee may, at any time and in its sole and unlimited discretion, accelerate the payment of any part of an Executive's Accounts. 9.2 Nothing in the Plan shall confer on any Executive or any other employee of the Company any right to continue in the employ of the Company or affect in any way the right of the Company to terminate any such person's employment at any time. 9.3 Rights under the Plan shall not be assignable or transferable or subject to encumbrance or charge of any nature, other than by designation of beneficiary to take effect at death or, in the absence of such designation, by will or the laws of descent and distribution. 9.4 The Plan shall be binding on and inure to the benefit of the Company, each Executive, and every person claiming through or under an Executive, and their respective heirs, successors, and assigns. 9.5 Deferral Elections under the Plan are intended to defer Executives' recognition of income, for income tax purposes under the Code, until their actual receipt of payments from their Accounts. The Plan shall be interpreted and administered in a manner consistent with such intent. 9.6 This Plan shall be effective on and after its date of execution. IN WITNESS WHEREOF, the Board has caused this Plan to be executed by a duly authorized officer of the Company this 2nd day of August, 2001 . OWENS-ILLINOIS, INC. By /s/ Thomas L. Young ---------------------------- Executive Vice President Attest: /s/ James W. Baehren - --------------------------------------------- Secretary -9- EX-12 8 a2063263zex-12.txt EXHIBIT 12 Exhibit 12 OWENS-ILLINOIS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Millions of dollars, except ratios)
Nine Months ended September 30, ------------------------------- 2001 2000 -------- --------- Earnings (loss) before income taxes, and minority share owners' interests ................................ $ 646.6 $ (439.7) Less: Equity earnings ..................................... (13.7) (14.6) Add: Total fixed charges deducted from earnings ........... 345.2 382.0 Proportional share of pre-tax earnings (loss) of 50% owned associates ..................... 8.3 8.2 Dividends received from less than 50% owned associates .................... 7.5 5.9 -------- -------- Earnings (loss) available for payment of fixed charges ............................ $ 993.9 $ (58.2) ====== ====== Fixed charges (including the Company's proportional share of 50% owned associates): Interest expense ............................... $ 322.4 $ 353.2 Portion of operating lease rental deemed to be interest .................................... 9.6 21.2 Amortization of deferred financing costs and debt discount expense .......................... 13.2 7.6 -------- -------- Total fixed charges deducted from earnings and fixed charges ........................... $ 345.2 $ 382.0 Preferred stock dividends (increased to assumed pre-tax amount) ........................................ 27.2 26.0 -------- -------- Combined fixed charges and preferred stock dividends .............................................. $ 372.4 $ 408.0 ======== ======== Ratio of earnings to fixed charges ........................ 2.9 Deficiency of earnings available to cover fixed charges ... -- 440.2 Ratio of earnings to combined fixed charges and preferred stock dividends .............................. 2.7 Deficiency of earnings available to cover fixed charges and preferred stock dividends .............................. 466.2
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